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Quality of Hire: The Top Recruiting Metric

by
Stephen Lowisz
Jun 30, 2010, 1:48 pm ET

We talk about “top” talent and “top” performers, but how do you know you’ve reached the “top”? Is there some kind of altitude marker? A sign that reads “Welcome to the Top”? Unfortunately, no. But of all the recruiting metrics in your talent capital toolbox, one indicates a recruiting job-well-done above the rest: Quality of Hire.

Every CEO, manager, and corporate investor knows that hiring the best people is what ultimately drives an organization’s long-term success. Yet the recruiting metrics most companies employ evaluate efficiency rather than quality. Metrics like “time-to-fill” and “cost-per-hire” only tell us about the process, not its impact.

What matters most is how new hires perform and how much they contribute to your organization’s growth and goals. “Top” performers can exponentially increase your productivity and profitability, while those with lower standards can damage your bottom line and plummet your reputation. Those numbers far outweigh how much time it took to fill their position. Yet the question remains: How do you evaluate the quality of your hires?

Determining Quality of Hire: Across Your Organization

If you were to deduce a formula for calculating how well your organization is hiring overall, it would look something like this:

Quality of Hire = (PR + HP + HR) / N

  • PR = Average job performance rating of new hires
  • HP = % of new hires reaching acceptable productivity with acceptable time frame
  • HR = % of new hires retained after one year
  • N = number of indicators

Example:

  • PR = Average 3.5 on a 5.0 scale = 70%
  • HP = Of 100 hires made one year ago, 75 are meeting acceptable productivity levels = 75%
  • HR = 20% turnover = 80% HR
  • N = 3
  • Quality of Hire = (70 + 75 + 80) / 3 = 75

The result is a quality level of 75% for new hires made in one year throughout an organization. Calculations can be modified to reflect hires made by quarter, bi-annually, or in increments of two, three, five years, etc. It all depends on how much or how often you choose to measure and report.

This formula gives a good indication of how close or how far an organization is from reaching its collective hiring goals. However, filling in the variables can be a bit tricky.

Determining Quality of Hire: Per Individual Hire

When we sit down and break down the above formula, we begin to see where calculations are cut and dry, and where they need further attention and work. “Number of indicators” and “number of hires retained” are easily quantifiable. But variables like “job performance” and “acceptable productivity” need to be further defined before they can mean anything numerically. How do you turn “job performance” into a number?

Most organizations use a numeric rating system to evaluate the performance and productivity of new hires. On a scale of 1 to 5, how well is Hire B performing X? This requires clearly outlining a position’s expectations and objectives, and what Xs are important to assess according to your organization’s goals. X = new business leads generated. X = number of sales increase. X = number of findings submitted. You define the criteria. Only then will “quality” take on significant, measurable meaning when you tally up your hiring scores. The key is tying your talent management strategy and measurements to your business objectives and results.

Keep it as simple as possible. Don’t try to include too many X-factors in your metrics program. That can get overwhelming or dilute decisive outcomes. Work with key stakeholders (CFO, top managers, hiring manager, etc.) to ensure credibility. And tie revenue per hire to dollar impact across your organization whenever possible to demonstrate the value of high-quality performers.

And keep track of your hiring progress! Identify a baseline. Measure annually (using your new handy-dandy formula). Note your best hiring sources and factors that indicated new-hire success (as well as those that didn’t). Share your results and reward your recruiters and hiring managers along the way.

Because the best way to know you’ve reached the top is to look back and see how far you’ve come.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  1. Quality of Hire: The Top Recruiting Metric « SteveLowisz.com

    [...] Every CEO, manager, and corporate investor knows that hiring the best people is what ultimately drives an organization’s long-term success. Yet the recruiting metrics most companies employ evaluate efficiency rather than quality. Metrics like “time-to-fill” and “cost-per-hire” only tell us about the process, not its impact. (Click here to read the rest of this blog at ERE.net) [...]

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    [...] Read the full Article Here Share General Never Read Another Resume blog comments powered by Disqus var disqus_url = 'http://www.baitbox.co.za/2010/07/01/quality-of-hire-the-top-recruiting-metric/ '; var disqus_container_id = 'disqus_thread'; var facebookXdReceiverPath = 'http://www.baitbox.co.za/wp-content/plugins/disqus-comment-system/xd_receiver.htm'; var DsqLocal = { 'trackbacks': [ ], 'trackback_url': 'http://www.baitbox.co.za/2010/07/01/quality-of-hire-the-top-recruiting-metric/trackback/' }; (function() { var dsq = document.createElement('script'); dsq.type = 'text/javascript'; dsq.async = true; dsq.src = "http://baitbox.disqus.com/disqus.js?v=2.0&slug=quality_of_hire_the_top_recruiting_metric&pname=wordpress&pver=2.33"; (document.getElementsByTagName('head')[0] || document.getElementsByTagName('body')[0]).appendChild(dsq); })(); [...]

  3. Gerry Crispin

    Nice post Steve.

    In the conversation about Quality of Hire, what shouldn’t be lost in this excellent post is the need for an organization to study and predict performance expected as a measure of the individuals they select. To be able to improve how we find, screen and select people who truly perform is less a creative art than a science but it requires discipline, data and the application of the scientific method.

    Obviously if a hire doesn’t perform and yet, is theoretically capable of doing so or, worse, they leave before even getting up to speed, there are red flags worth examining that go well beyond staffing.

    Sourcing candidates who [can] succeed to a standard level of performance doesn’t guarantee that they [will]succeed.

    Identifying and correlating the knowledge, skills, experience and attitudes that reliably and validly predict the “performance” indicators you’ve described is one measure of “quality” but not necessarily “of the hire”

    An entire process that includes flawed on-boarding or a poor manager and much more may be impacting the results and, in some part is being measured along with our ability to select the wrong candidate.

    So “quality of hire” as you describe it- is to me a misnomer that inappropriately suggests a single function’s responsibility but really is just one of several indicators of business ‘quality’ that show how well-aligned acquisition, performance management and development are to business results.

  4. CorDell Larkin

    Stephen,

    Very interesting article! Your equation for calculating how well an organization is hiring overall shows you have given this a lot of thought.

    That said, I wonder if you would consider it an improvement to change PR from “average job performance rating of hew hires” to “average job performance rating of new hires / average job performance of current employees”? This would result in a percentage, which fits nicely into your equation. NOTE: a score above 1 would mean that the population of new hires was more productive, on average, than the existing workforce population.

    Your PR measure appears to be a manager’s rating (given the 1 to 5 scale), and I wonder if most organization would get this rating only once a year. Having a measure only once a year means you really can’t assess performance, and make appropriate adjustments, more than once a year. Given the rapid changes in the business environment I wonder if this time frame for measuring QoH reduces some of its usefulness. Your thoughts? I also wonder if the subjectivity of this measure negatively affects recruiting’s ability to accurately identify areas for improvement, although I admit that getting an objective measure of performance may be problematic in some cases.

    I see the same potential problems with HP. If productivity can be defined, and “acceptable” levels and time frames can be agreed to, I think organizations would be best with an ongoing, or at least quarterly, way to measure productivity. This would afford a recruiting organization to adjust more rapidly to changes in the business climate. Sales, marketing, customer service, even businesses report their performance more often than once a year. Recruiting should also.

    CorDell Larkin
    http://twitter.com/cordellco

  5. Dr John Sullivan

    Stephen

    Good article. I have found in the corporate world, that there is one more task or step beyond what you provided for quality of hire calculations, and that is converting any quality of hire metrics it into dollars. Saying your QofH improved 12% doesn’t get a COO or CFO’s eye nearly as fast as saying that this year’s new hires produce an average of $87,000 more revenue than last year’s hires. Showing that a new hire produces (for example) 3 times the revenue than the average employee is the most powerful way to present Q of H and to get executives to want to hire more.

    John

  6. CorDell Larkin

    I agree with Dr. Sullivan that “dollarizing” the benefits is always the best policy. If anyone wants a simple explanation of dollarization check out Jeffrey Fox’s book “How to Become a Rainmaker”.

    The trick is to know how to dollarize accurately and believably. When I consult with companies in this area I focus on linking output to some part of the profit equation P = R – C, or Profits = Revenues – Costs. This is easy when the position has an established link to revenues, but a large portion of jobs do not. In these cases I focus on the relationship between the amount of output (be it a product or a service) over a specific period of time and the associated costs to produce that output. In these cases, improving QoH is associated with monetary savings (generated by increasing output more than increases in cost/compensation) and can sometimes be presented in the form of profit increases.

    On a side note, my firm’s research into talent management effectiveness, using sales per employee, operating income per employee and cash flow per employee, shows those companies who consistently improve on these measures (without cutting headcount) outperform their competitors when it comes to stock price/returns significantly.

    CorDell Larkin
    http://twitter.com/cordellco

  7. Stephen Lowisz

    Gerry – thank you for your comment where you stated “An entire process that includes flawed on-boarding or a poor manager and much more may be impacting the results and, in some part is being measured along with our ability to select the wrong candidate.” As we all are aware recruiting is a process that involves the recruiter, the hiring manager, hr and many other functions within each organization. The quality of hire measurement method that I explain in my post is a measure of the individual’s performance in a specific organization under a specific set of circumstances. That same quality of hire measurement with the exact same employees could be very different within another organization due to a host of values.

    A low quality of hire result based on this formula indicates not that they candidate himself or herself is flawed, but that the fit of hire for that specific organization is wrong – that is the ultimate goal in measuring quality of hire, is it not?

    A low quality of hire indicates that the recruiter may have presented the wrong the candidate, the hiring manager may have hiring the wrong candidate and the entire organization does not have the infrastructure in place to develop that candidate. Depending on the time frame in which you apply this formula, different people are held responsible. For example, I personally hold the recruiter accountable to the first quarter result of applying this formula for most positions. After 90 days the majority of the responsibility for the success of that hire transfers to the hiring manager and the rest of the organization.

    Is this measurement perfect – of course not. Can quality of hire ever be perfectly measured – of course not. Should organizations hold their recruiters responsible for the quality of their hires for their specific organization – YES!

  8. Stephen Lowisz

    CorDell – your comment raises some interesting thoughts and is actually the subject of a an upcoming article in the works. The first step is measuring the quality of the actual hires, the second step is comparing that with your existing staff and measuring the difference.

    Most organizations either perform or should perform a 90 day review of all new hires. This would provide the data necessary to track the quality of hire for the first quarter of each candidate – this is the time period that a recruiter is really responsible for.

    The PR rating should not be a completely subjective manager rating, but a rating based on specific goals and objectives – something EVERY employee should know and understand. For example, those in business development have specific monthly, quarterly, and annual sales goals they are required to achieve – easy to measure. A customer service professional may need to attain a certain number of successfully completed calls in a certain period of time. Whatever the measure, it should be well defined and easily measurable.

    In certain instances I have seen organizations without well defined goals and the PR was a subjective number. Although this is not as accurate as a well calculated objective, it still allows the organization to drive home what is important – the quality of the hire and the factors that influence this quality.

  9. Stephen Lowisz

    Dr. Sullivan – I agree with your advice on taking the quality of hire a step further and assigning a dollar value to the result of this equation. When tracking Quality of Hire for recruiting and HR, the value received by the formula I presented is an easy to understand number for comparison.

    When providing detail to line managers and business executives, putting real dollars and cents makes a much larger impact. Thank you for the comment!

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