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Our Most Effective Source of Hire

by Apr 5, 2012, 5:53 am ET

We started measuring quality of hire a couple of years ago. What started out as a simple exercise to see how we were doing turned into an interesting experiment. We realized in order to save the company money and increase productivity, we needed to measure quality of hire and sources of hire together. The results were interesting, and in one case the result was actually surprising.

There are a few hire-quality formulas out there, and you can make it as simple or as complicated as you deem necessary. In our case, we took the simple route.

Quality of hire is defined as the percent of new hires who pass their one-year anniversary and score at least “meets expectations” on their first review. For example, we grouped together all the new hires from the first quarter of 2010. We then ran a report dating to the last day of the quarter a year later, 2011. We determined what percent of those hires were still employed and were not on performance improvement plans, etc. We did this on a quarterly basis.

This is simple but effective. It doesn’t matter whether the employee was a poor performer, an excellent worker who was disillusioned, or a job-hopper.  Ultimately, the business is negatively impacted if it loses talent in the first year, or is dealing with a poor employee.

The results of our experiment have been illuminating.

I, like all of you, believed and kept hearing that employee referrals were the best source of hire from a quality perspective. However, I had difficulty finding data that actually backed that up. Being analytical, this was important to me. So we started measuring Quality of Hire from a Source of Hire perspective globally. The results are interesting:

  • The #1 ranking for quality hires: former employees. This makes sense. Former employees have experience with the company. They understand the culture, and have a desire to return. So naturally are likely to stick around.
  • The #2 ranking for quality hires: passive candidates. These are people who are not looking for jobs and have been sourced by our internal recruiters. Generally, passive candidates are usually happy to lukewarm about their jobs, or are possibly too passive to make a change.
  • #3 ranking for quality hires: employee referrals. Referrals are not at the top but they still score impressively. More importantly, referrals account for a much greater percent of our new hires than former employees and passive candidates.
  • #4 quality hires: staffing agency hires. Most of our agency hires are in the EMEA region and have proven to be pretty good from a quality perspective.
  • #5 quality hires: contractor conversions. This one surprises me. I was of the impression that the “try before you buy” credo was a good one, as contractors could assimilate into the company culture and there were no surprises regarding expectations.
  • #6 quality hires are job boards. Disappointing, as this is an easy source to advertise and mine candidates and has also been our second-largest source for external hires behind employee referrals.

There was a 10 percent variance between the fourth-best source (agencies) and the best (former employees), so not a huge difference in the top four sources and quality of hire. However, contractor conversions and job board hires trailed former employee hires by 20% and 25% respectively, thus resulting in a trend of unsatisfactory hires from these two sources.

This is an interesting and revealing exercise. Granted, there are many factors that affect why an employee will succeed, leave, or be let go in the first year. We are not addressing those here. We are addressing the sources for new hires: which ones show a trend for success and which ones don’t. This is extremely important from a strategic standpoint.

In our planning, we can focus on putting more resources and effort toward the good quality hire sources, such as employee referrals, passive candidates, and former employees. We can also put greater efforts into qualifying and assessing candidates who come from less-successful sources such as job boards and current contractors. As an example, it is not our intent to stop using job boards, as they are a great source for branding and attracting, but we will take greater care in ensuring candidates are better qualified from a position and cultural perspective. By improving our focus in sourcing, we can directly improve the bottom line and the overall financial health of the company.

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.

  • http://www.fasttrackrecruitment.com Mitch Sullivan

    I suspect that the agency rating would be lower in many companies – simply because many companies don’t manage that particular resource very well.

    Interesting article though Randall, thanks for sharing.

  • http://www.kellyocg.com Jillyan French-Vitet

    Interesting –> we are taking a similar approach/methodology!

  • http://www.bodognation.com Paul Humphreys

    Great to see an article which is more than just someone’s opinion and actually uses some hard cold numbers to back up their point. Much appreciated. More in the future please!

  • Ben Sian

    Randall,

    Good hands-on, practioner-oriented article. I’ve got some follow-up questions, though, such as how did you actually track the sources of hire, especially “passive candidates?” Did you survey recruiters about where each hire was generated? Is “source” captured in your ATS? If candidates self-categorized their source upon application, how did you educate them on what constitutes a “passive” candidate? Or did you utilize an indirect measure? What actually drove your Source of Hire categorizations? Thanks in advance for your insight.

  • http://www.wix.com/bfranzen/bfranzen Becky Franzen,

    Great data Randall as it’s definitely a company’s pain point in tracking. What technology do you use to track this? Is is self select or captured on the backend?

  • Jennifer Weston

    Great article. One might argue that the job boards play a greater role in the SOH in that most likely the agencies (#3 on list) are sourcing a large majority of their candidates from job boards. Unless, they have told you otherwise?

  • Jennifer Weston

    Great point Becky. Randall – how are you tracking SOH? As studies have indicated, if given the opportunity to self identify the referring source, only one in six job seekers will accurately do so…

  • http://www.akascia.com Chris Sargent

    An interesting article – it’s something that would be really interesting to see from lots of other business too. As a headhunter, I would also argue that almost all the candidates we find and submit are also passive candidates. Also, with the former employees, there will of course be a finite limit to those and trying too hard to hire the ones who don’t really want to be hired again may result in some bad hires.

  • http://www.linkedin.com/in/robmcintosh Rob McIntosh

    Randall – I am also in the process of measuring QoH by source but looking at not just data on “meets” but getting into more detail on the outliers on a bell curve which are exceeds/exceptional performers. I have also identified that most companies will have the same challenge that if you look at 1year employees vs. year 2,3 and beyond, the Year 1 employee directionally will end up with a greater % of annual review scores are “meets” because of the new person syndrome, etc

    Be interested in your comments on this one?

    Nice article.

  • http://www.HealthfirstNY.org Gina Cleo Bloome

    I’ve had to go through this exercise more than once and the reality is that unless you measure quality of hire as a percentage of hires from that specific source and then as a percentage of all hires , you have nothing to really go on. In my last company, we found that 3 out of 3 hires from craigs list were top performers. But we hired 5000 people that year and I don’t think putting all our effort into craigslist was going to solve our problem. It was interesting though that contractor converstion scored so poorly but it probably speaks more to lasiness on the part of managers to really monitor and evaluate the work of the contractor before converting them. All too often, they get the job because they have been there and it is too urgent to have someone fill the job than take the time to really source and interview.

  • http://www.HealthfirstNY.org Gina Cleo Bloome

    And to Rob’s point, remember how at Deloitte, we all got automatic “MEETS’ if we had been there less than 12 months? That sort of policy certainly skews the QoH rating

  • http://www.akascia.com Chris Sargent

    Nice points Gina! I’ve also been thinking that it’s likely a former employee will score highly on their first year review, given that they should already know a lot about what to do and who to get along with.

  • Chafic Abillama

    It’s an interesting article but I’m surprised your career site is not making the list. I’d expect many candidates who have been exposed to your recruitment campaigns – or those who simply know your company – ended up applying on your career site. Was it purposely omitted from the list, or did you simply lose most of these hires?

    I was also wondering if you had an onboarding process which ensures you are retaining new hires. If you don’t, is it possible that those who have been targeted by your recruiters, referred by an employee, or who were previously employed have more chances of staying longer?

  • Keith Halperin

    Thanks, Randall. I commend your company for quantifying this. I also really like Gina’s point in saying that a particular source may be very “effective”, but not very “significant” like the 100% quality (effective)Craig’s List hires for 3/5000 positions (not significant). Combining effectiveness with significance could provide enen more valuable data. Also, it would make sense to be more “granular”(if possible): a given source might be effective for a given period but not for another given period (former employees and referrals might work better just after the beginning of the year than at the end), or it might be effective for some types of positions but not others (3PRs might be better at finding good directors than at finding good jr. engineers).

    Cheers,

    Keith “Metrics are Good: Just Don’t Have Me Responsible For Compiling Them” Halperin

  • http://bwasearch.blogspot.com Donna Brewington White

    Even as an “outside” recruiter, I find this information to be very helpful. In part, because I don’t consider my job well-done if the person I place does not perform well within the organization. Enlightening in the sense that it confirms the conclusions I’ve drawn more anecdotally over close to two decades of recruiting.

    This also reinforces my aversion to job boards except in selected cases. I really resonate with the use of job boards for branding — especially for lesser known companies. Sometimes that is the only reason I will post a job on behalf of a client as part of the recruiting strategy.

    I wonder how you are including headhunters in the category of “staffing agencies.” Even though I am an outside consultant (headhunter), the results from hiring passive candidates would be more in alignment with what I provide to my clients.

  • Randall Birkwood

    Thank you for your comments and questions. I will try and answer your questions as briefly as I can:

    • As stated at the beginning of the article you can make measuring quality of hire as complicated or as simple as you like. The most important thing is that you measure it consistently, on an ongoing basis, also measure the sources these new employees came from. From the data you gather you can then get more granular, such as what Rob, Gina and Keith suggest. For example, if you can put a focus on the outliers- top performing new employees and top performers who left early there can be a number of important activities that may result, such as better onboading, methods of sourcing, etc. If you want to provide value to your company’s executives this is extremely effective!

    • Regarding source of hire measurement, we have an ATS, ADP/VirtualEdge. Our tracking comes from a variety of means- the source code is embedded in job postings; employees submit referrals directly to the ATS; internal recruiters upload resumes they sourced; and candidates self-select when they apply. In regards to Chafic’s question candidates who select our career site almost always come from another source as we are not a household brand like an Apple or Nike. So we vet each candidate from this source and validate where they came from during our pre-screen.

    Again, I would stress you keep it as simple as possible for the baseline, so you have something to work from. Thanks again for all your comments.
    Randall

  • http://www.optijob.com Christopher Amato

    Chafic made a good point about the company’s career center. We are a small employer, but we made 4 hires in 2011 via our career center, blog and social media connections. We don’t use agencies or job boards (somewhat the same ultimate source) and employee referrals have been hit or miss on quality. I am a fan of Craig’s List as a numbers source, but it takes a committed effort and lots of patience to get through to someone that makes the grade.

    I would strongly suggest investing more resources to the asset that can build long term equity: the employer brand and employer career center which will soon become the center (hub) of all the action.

    Congratulations on your assessment! It’s a great start, but SOH and COH really need to be added to the mix to really get to the good stuff. Then you can take proactive steps to duplicate the activity that yields QOH with the lowest total (all in) COH. ATS vendors should really open up to 3rd party sources in order for employers to have access to this type of data rather than forcing employers to guestimate.

    Great post!

  • John Fortner

    I have a theory on contractor conversions and why they may score low. *bear with me as I take liberty with some assertions.

    Contractors bulk of work is typically the stuff the FTE’s don’t want to do. I believe that many contractors treat their job as a working interview, and generally work harder than their FTE counterparts. Two things occur when they are converted: Their scope of work changes and the dynamic of their “working interview changes”. I believe they give themselves a break and throttle back on their pace after they convert – At the same time, they are having to do more project/strategic work, which they are not ready for.

    When their 1st year evaluations come, their manager remembers them as that go-gettum contractor who kicked butt, now suddenly perceived as lazy and unable to execute effectively on strategic projects.

  • http://drjohnsullivan.com Dr John Sullivan

    Randall Birkwood has been one of the pioneers of modern recruiting since his days at Cisco during the last War for Talent. His recent work in the QofH area further contributes to his impressive body of work. It is time for all to follow his lead.

    John

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  • Bree J

    Hmmm, employee referrals may work in many situations but at one large blue collar organisation where I worked, it was an important means of getting friends & relatives of certain ethnic groups in & therefore bolstering the position & preceived strength of your ‘group’. It was very hard to find quality blue collar workers in this industry so management tended to rely on the referrals of existing employees quite eagerly for many years. Until it all started imploding & the workplace became a scene of racial tensions, a battle for ethnic minority rights & other associated conflicts.

  • http://www.akascia.com Chris Sargent

    Re Christopher Amato’s comments, I strongly disagree with two statements “We don’t use agencies or job boards (somewhat the same ultimate source)” and “career center which will soon become the center (hub) of all the action.”

    Firstly, if the agencies you’ve tried only send you people from job boards then you’re using the wrong ones. We don’t have access to any job boards – we search for passive, inactive candidates (as indeed do many good search firms).

    Which brings me to the second point, for sure it’s important to have a good careers centre on the web (and I’m still surprised how many of my clients don’t advertise the positions I’m working on, on their own website) but it is utterly reliable on someone actively seeking out your site or actively seeking a job.

    That sales guy working at one your competitors, smashing his targets, making lots of commission (at the same time as winning sales from you) is unlikely to take the time to seek out your website and apply for a position with you. He’s even less likely to do it at the same time you actually want to hire him. And to a certain extent, it doesn’t matter how strong your brand is or isn’t in this regard.

    With regards to contractors, in my experience contractors can be fairly mercenary. When they take a permanent role it is often because they couldn’t find the right contract at the right time. Hence, they get converted to permanent but then another contract comes along that’s more interesting and paying more money and the inevitable happens. Call me cynical….

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  • Lydia Peavey

    Excellent – thanks for the insight. I’d imagine quality of rehires depends on the quality of the organization. I left a difficult environment where anyone worthwhile wouldn’t choose to come back, and the ones that did were people who couldn’t find something elsewhere. Employee referrals weren’t great options either, obviously. I did what I could by sourcing externally, but their standard method was finding a family member who needed a job (any job) or throwing darts at responses to a Craigslist post. Great recommendation from Dr. Sullivan – you’re building world-class teams, and these findings just reinforce that fact.

    And thanks for nerding it up, Ben.

  • http://www.optijob.com Christopher Amato

    Chris – why so defensive?

    I certainly understand the value of a true executive recruiting firm, that’s not my point. We used recruiting firms in the past with success and I was successfully recruited away from a company I had no intention of leaving, but in our experience, we found that the majority of employees (mid management/sales) hired through agencies (not yours) also had resumes posted on job boards, if not multiple job boards.

    Executive level recruiting will always be needed, but I find it hard to defend that the majority agencies us the same resources that employers do. If you look at job board revenue over the years, staffing firms or all kinds, were the foundation for many of the most successful boards, and now remain their core source of life support, as employers are moving to establish their own metrics driven search, Social Media and Mobile initiatives.

    I admire the “Real” recruiter, the “Networker”, the one that can get to the best without causing ill-will for the client employer. It’s bush league when an employer tries to recruit directly without reputable representation.

    I’m sure its not easy easy differentiating from the rest of the pack. The so-called recruiters that just exploit resources (job boards) faster than their clients. If segmented, I’m sure the employees placed by these “sourcers” fall in the low QOH bucket.

    Consumerization has played a big part and continues to influence change in employers’ recruiting strategies and their is no denying it. Career Centers are/will be the hub of all recruiting activity as the market forces incumbents (ATS, Job Boards etc) to innovate in order to provide a holistic recruiting platform. There is a mashup out there that will change the people business.

    I still chuckle when I re-read the articles stating Monster will be the “End of Recruiting”, “the Beginning of the End” etc., pretty funny right? As I see it, as long as there remains the need for exceptional talent and assuming the exceptional talent exists, recruiting will remain for a very long time.

    Chris, it appears that you are one of the elite that takes this stuff personally, I would too.
    I understand your points, but it doesn’t change things. I do however agree and support your overall message defending the need for expert recruiting assistance, by reputable firms, when needed. The best don’t broadcast their availability because they are too busy producing! Which leads to a whole different topic on how not to lose your star players!

    Enjoy the holiday!

  • Keith Halperin

    @ Christopher A:
    Well said. As a contract recruiter, I see a vital need for elite 3PRs. They can do things and have knowledge that internal and contract recruiters aren’t able to do as well or as quickly, and should be compensated with 30% fees. At the same time, a very large number of 3PRs are the types just mentioned- getting candidates’ resumes off job boards for clients too ignorant to know of the superior and more cost-effective alternatives like getting up to 15 positions sourced from Monster, CB, DICE and internet-sourcing for $250/week, or world-class names-sourcing for the hardest-to-find passive candidates for $40/name….

    Two modest proposals:
    1)When looking for a 3PR, a potential client should ask them what resume banks/job boards they have access to, and if they list any of the “Big Three”: go on to another agency. (Also, check on the “Big Three” boards to make sure they’re telling the truth.)
    2) After the expiration of their current contracts, the “Big Three” boards should no-longer permit 3PRs to use their resources, and would perform checks into the backgrounds of new potential customers that to make sure they’re not 3PRs. Of course, there will always be companies/people who get around this through various means, but it should reduce the problem….

    Happy Pesach and Happy Easter, Folks

    Keith keithsrj@sbcglobal.net

  • Stephen Chatham

    Nice article.

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  • http://www.akascia.com Chris Sargent

    @ Christopher Amato

    Hey Chris, didn’t mean to come across as quite so defensive so sorry for that! But I feel there’s a world of difference between the best and worst ‘agencies’ and I guess I do take it personally if we are all are tarnished with the same brush.

    And you’re right, there are many agencies who virtually solely rely on the major job boards and their ability to find CVs quicker than their competitors and clients. It’s a shame but most people’s perception is that all recruiters work like this and therefore don’t value the industry as a whole.

    I think search firms and recruiters will exist and will have a role to play as long as clients feel they need to be proactive in their recruiting efforts. I do also think that as the quality and quantity of in-house recruitrs increases, the number of agencies who rely on getting to the CVs first will diminish.

    Thanks for the article and the comments!

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