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.

What is even more interesting than the actual volume of candidates is the response I hear from business leaders as to how they are dealing with this issue.

Overwhelmed

The most common response is that corporate recruiters are now overwhelmed by the number of resumes they must review. ATS systems are bursting at the seams, with unqualified applicants who are taught to apply to every posting available in order to get their resume in front of a recruiter. Once again recruiters have to focus on the transaction of recruiting. They don’t have the time to develop the right relationships with the right candidates for the right time.

Speaking with the SVP of talent acquisition at a large financial institution, she indicated that her staff of more than 100 recruiters only review the first 30 to 40 applicants (on average) per requisition. They eliminate the remaining due to the sheet volume they must review. Whether organizations admit this openly or not, this is a common practice today that results in recruiters missing many exceptionally qualified candidates who did not happen to be one of the first 40 to apply to the position or posting.

Although a real issue, being overwhelmed can be dealt with by adding additional resources to properly review all the candidates who apply. Expensive? Yes. Possible? Also yes. Smart? Definitely yes.

Over-hiring

A second theme currently pervasive among business leaders at all levels is the concept of over-hiring during poor economic times when candidates are plentiful. As I recently listened to discussions about this topic on Sirius radio, I began to grow concerned about the impact this will have on the long-term success of certain organizations. The commentator was interviewing the chief operating officer of a large manufacturing facility located in the southern United States, who was extremely proud of the fact that he only hires candidates with a bachelor of science degree in Manufacturing or Engineering. On the surface this sounds like many organizations. The difference is that these positions were primarily production floor operators with an average wage of $12 per hour.

This well-respected COO went on to say that his organization is taking advantage of the current economic conditions by over-hiring and under paying at all levels within his organization. He continued by stating that he recently hired a plant manager who most recently was the president of his closest competitor, at a salary level that was less than 60% of his previous compensation.

I began to wonder how prevalent this attitude is today, and what the impact will be tomorrow to these same organizations. As I reflected on a number of meetings I had recently with company executives who were of like opinion to this COO, I picked up my cell phone, called into this executive’s organization, and asked for the plant manager! Within 10 minutes I was engaged with this president-turned-plant-manager, discussing his current circumstances and long-term career outlook. As I spoke to this individual (let’s call him ‘John’), I soon found out that there were many others like him within the organization who were considered over-hired and grossly underpaid.

John and these other individuals are currently learning how the organization operates, who their customers were, what their long-term strategy is, and even learned certain proprietary manufacturing methodologies used by the organization. John went on to explain that a large number of the current employees were just waiting for the opportunity to leave their current employer as soon as the economy improved, leaving the COO to find replacements, train them, and potentially lose a substantial amount of intellectual capital.

I realized after my conversation with John that the United States may find itself in an employment situation not unlike what we experienced in 2005 and 2006. Companies across the country were struggling to find the “right” candidates for the “right” amount to sit in the “right” seats on the bus. Many organizations who have taken advantage of this over-hiring mentality risk having a mass exodus of experienced talent leave their organizations as the economy improves. It might not be this month or next month. But the economy will improve, and these candidates will find better paying jobs closer to their skill levels and expertise. These companies may pride themselves on saving money at the time, but they aren’t thinking of the amount of time, money, and productivity wasted when new talent has to be hired and trained … again!

After speaking with John, I continued my search for information and validation and began speaking to both executive and middle management candidates who are either contemplating a job change or recently accepted a position that could be considered beneath their current skills and/or abilities. The overwhelming theme was that they are basically biding their time until the economy improves, at which point they would be seeking more meaningful employment. I heard comments that included “I am only here until a position opens up with our main competitor,” or “This organization has shown their lack of commitment to me by taking advantage of my situation; I will be gone in a matter of months.”

Although shocked by many of these comments, I began to understand their perspectives and began to wonder about the impact a mass exodus of candidates could have on some of these organizations. The bigger question is: what can organizations do to avoid circumstances such as these and protect themselves from a potential loss of talent and intellectual capital? In speaking with these candidates, they would tell you loyalty is built on two basic principles:

1. Fair Compensation: This does not mean pay equal to what a candidate had in the past in better economic times. Fair compensation is a fair wage for the work being performed and the impact being made on the organization with planned and incremental increases based on hitting specific and defined objectives. Being fair in tough times will create a level of loyalty that is vital, tremendously strong, and virtually guarantees the employer will keep their top talent as the economy improves and qualified candidates become sought after.
2. Honesty: If you are over-hiring a candidate for the short term, tell them. Most candidates stated they were OK with knowing that the role could be temporary, or there was little room for real advancement. Honesty from the employer regarding the circumstances of the positions and the financial situation of the organization goes a long way to building a dedicated and loyal workforce, even if for a short time.

If you are going into the market with a short-term view and the intent of over-hiring and underpaying due to the economic conditions, start preparing for future fallout and loss of employee loyalty. If you value your employees and are focused on long-term gain, being fair in such an economy will pay large shareholder dividends in the future.

There is some truth to the saying: “Short-term pain leads to long-term gain, and short-term gain often leads to long-term pain.”

I recently had the opportunity to speak at a recruiting conference whose major theme focused on technology and its application in the recruiting lifecycle. As I stood in the back of the room waiting for the speaker in front of me to finish her presentation, I was shocked at what she had to say. She stated that “there is no reason to actually talk to a candidate today.” She continued by saying that “email and text messages should be the only means we use to contact and recruit candidates today because that is the medium they use.”

As this well-known speaker’s comments began to sink in, I realized the cause of many of the problems we face today — it’s people like this speaker who teach us to rely almost exclusively on technology! I may not be a doctor, but the last time I checked, every candidate is a living, breathing, human being with the innate craving to have a relationship with other living, breathing, humans.

Within the recruitment profession today, technology has moved from a tool to identify candidates and create efficiencies to a mechanism that replaces real relationships. If we all rely on the same technologies to identify, engage, and recruit candidates, what will be the differentiator from company to company? Are candidates to be treated as a commodity?

Have we forgotten that recruiting is sales? That sales is what builds real relationships? That technology should enable us to be more efficient but cannot engage a candidate in the way a recruiter can? Obviously these are all rhetorical questions aimed at pointing out how our near-reliance on technology is only exacerbating the problems we face today.

As I surveyed the room after I heard these ridiculous statements, I realized the impact this speaker had on the audience of seemingly young, inexperienced recruiters who were attempting to learn at least one nugget of information they could apply when returning to their respective companies.

It is direction like this, from supposed leading authorities in the field, that are causing recruiters to lose touch with candidates and treat them like a number instead of a person.

Let’s break down the obvious: Most exempt-level candidates, whether active or passive, have many choices today of where to work. When an active candidate submits a resume to your organization, you can assume they have applied to your top competitors competing for the same talent. Likewise, passive candidates know that they are in demand and can choose who to speak with.

This reliance on technology has created a ‘post and pray’ and ‘email and wait’ mentality for most recruiters. Sending broadcast emails, blogging, and social networking sites are the same tools your competitors are using to engage the same exact candidates that you want. Although these are fantastic tools to identify potential candidates, engaging them is the challenge. It is difficult to establish a relationship of substance when you have never spoken to the candidate or all of your follow up is done through non-personal means.

If recruiting is sales — and it is — what do we know about the sales process? Every Sales 101 class teaches us that there are five main steps in the sales process:

1. Develop a relationship
2. Identify the need
3. Overcome objections
4. Fill the need
5. Advance the sale

Identifying the true need of a candidate is done by asking emotional, open-ended questions, overcoming objections, and then tailoring the opportunity to the individual’s stated need. Posting a job description, emailing the same description to your social network, or blogging about your great opportunity skips the key steps in the sales process — identifying the need of the buyer (in this case your candidate).

We are also taught that consumers of any product or service are initially attracted emotionally, and later justify their purchase rationally. Candidates are no different; if we engage them emotionally, we have a greater chance of having them buy into the position we are selling. There is no substitute for a trained recruiter developing a personal relationship with a candidate to identify their emotional wants and needs in order to present what the candidate wants, not what the recruiter has to sell. This is a common mistake made by recruiters today, resulting in a lack of qualified candidates that they can generate for their companies.

Understand how technology can benefit your recruiting process and hold your recruiters accountable for establishing meaningful relationships just like we expect our salespeople to do. Technology is by the far the most effective way to source potential candidates. The real challenge is what to do with them once you find them. With all of the options passive and active candidates have today, it is even more important to engage them in a manner that builds a stronger bond with them than your competition.

Once you start combining the efficiencies of technology with the expertise of properly trained recruiters skilled in the art of sales, we can reverse the trend created by the ‘silver bullet’ mentality. With 70% of a company’s assets in human capital, talent acquisition should be the most respected shared service within an organization.

So much emphasis has been placed on prospecting or sourcing potential candidates that recruiters are not taught the basics of the sales process that follows the sourcing function. Having listened to thousands of third-party and corporate recruiters over the past 15 years, my sense is that less than 10% of recruiters understand basic sales principles.

Although the terminology may differ, the following are the critical steps to every successful sales professional or recruiting professional.

1. Developing the Relationship: This is the time that the warming-up events occur before the serious selling begins. This includes how you introduce yourself and how you begin the conversation. Candidates have stated that it’s during the first two minutes of the call that they form crucial initial impressions that influence the rest of the recruiting process.

2. Creating/Identifying the Need: Every sale involves identifying a need that the candidate is often unaware of by asking questions. This is much more than a simple collection of data. Identifying or creating the need is the most important of all selling and recruiting skills. Recruiters who are the most effective during this investigative stage are most likely to be the highest performers. Recruiters with poor investigative skills generally create candidates who ultimately do not accept the position once offered.

3. Preventing/Overcoming Objections: Although objections are inevitable in any sales process, the key for successful sales professionals/recruiters is actually preventing objections. By asking the right types of questions in step 2, many objections that would have arisen in the process are addressed before the candidate has an opportunity to bring them forth. Keep in mind that some objections are inevitable, that they are often training responses, and that most are emotional and not practical.

4. Filling the Need/Providing Benefits: Identifying the need is considered the most crucial skill in sales or recruiting; filling the need is the second-most critical step to ensuring success. Often recruiters and sales professionals alike pay little attention to step 2 and focus solely on step 4. Like many sales professionals, recruiters often focus on what is commonly known in sales language as their “product knowledge.” They have an in-depth understanding of the organization they are recruiting for, they understand every detail of the position and its function, and they completely understand the requirements of the role. Armed with all of this product knowledge, these untrained recruiters contact potential candidates and attempt to “tell” them about every benefit of the position and company they represent, never addressing the real needs of the candidate. This is a common mistake that is made by most sales professionals and is illustrated further in this article.

5. Advance/Close the Sale: In recruiting and sales, advancing the sale is the final objective throughout every step of the process. By filling the need in Step 4, you are in a position to advance the sale to the next step. In recruiting, closing is most commonly compared to presenting the offer and gaining acceptance from the candidate. At this stage recruiters often focus on the practical aspects of the offer being made: compensation, benefits, perks etc. Effective recruiters and sales professionals alike understand the importance of re-emphasizing the emotional drivers identified in Step 2 of the sales process prior to presenting the practical aspects of the solution.

Although these 5 steps are critical to the success of every recruiter, most focus and are trained only on steps 1, 4, and 5, skipping the most important step: Identifying the Need.

Recruiters like to tell about the great position, company, and opportunity that they currently have without having asked any questions to identify the needs of the potential candidate. This “telling” versus “selling” approach continues to be prevalent among the majority of recruiting organizations, minimizing the benefits of sourcing tools, branding, and recruiting technology available today.

The profile of today’s recruiter must also change. An effective recruiter should be seen as a sales professional who exemplifies the ability to develop candidate relationships, identify candidate needs, overcome or prevent objections, fill the candidate’s needs, and advance the sales process. Recruiters need to be given the appropriate training to move from “telling” about their opportunity to “selling” their opportunity.

• Metrics must be predictive and actionable. Statistics need to provide information that can be acted upon by providing data to indicate trends.
• Metrics must be tracked over time in order to generate internal benchmarks and analyze internal performance.
• Recruitment metrics should include both quantitative and qualitative aspects. Time and cost obviously comprise the quantitative aspects of recruitment metrics, while productivity, retention, efficiency, and candidate performance comprise the qualitative aspects.

Metrics of the Past

Ten years ago recruiting was often seen as a steppingstone to an HR generalist role. Recruiters were trained to “screen out” applicants, thus making their positions transactionally focused. This led to the two most commonly used metrics: cost-per-hire and time-to-fill.

Cost-per-hire, the most common measurement applied to recruiting, only looks at the initial cost — and not the long-term cost — associated with hiring the wrong candidate. Focusing purely on initial cost will drive recruiters to place a ‘butt in a seat’ without regard to the quality of hire or the long-term production the candidate will or will not deliver.

Time-to-fill measurements are often popular due to the cost associated with positions remaining unfilled. Although this cost can be significant, this metric does not take into consideration the long-term cost associated with greater turnover percentages and additional recruitment costs for hiring the wrong candidates. Recruiters will focus on candidates considered the ‘lowest hanging fruit’ in order to fill positions faster.

Metrics of Today

As I speak with staffing and talent acquisition executives from around the country, they all express frustration in creating a measurable that drives one main objective — getting the right candidate for the job. In order to achieve this objective, we must first look at how the recruiter of today differs from the traditional recruiter of the past. Once we have the right recruiter, we can then focus on defining metrics that drive the right behaviors.

The recruiter of today has to move from being transactionally driven to relationship-driven. Recruiters are now sales professionals responsible for prospecting, building relationships, and advancing the sale. This function change requires the metrics associated with success of today’s recruiter to change as well.

Although the following is not an all-inclusive list, the following six metrics are examples of metrics that drive the right results and create the necessary behaviors needed to achieve these results.

• Performance/Quality of Hire: Data is driven by performance appraisal ratings and/or production 6 to 12 months into the new employee’s job as compared to their peers. Quality should be the first and most important recruiting metric. Since there is no formula for determining quality, recruiters and the hiring managers should define the standards for quality before recruiting. Quality of hire can be assessed through a simple survey that lists each criterion separately and asks the manager how the employee meets each standard on a scale of 1 to 5. New hire quality can also be tracked through formal performance evaluations, production reports, etc. A survey reported in Staffing.org’s Recruitment Metrics and Performance Benchmark Report found that the more regularly recruiting professionals measure new hire quality in an organization, the more satisfied hiring managers are with new hire quality.

• Manager Satisfaction: Data is driven by the percentage of managers who are satisfied with the hiring process and the candidates. This metric provides important, easily tracked data to determine a hiring manager’s preferences before recruiting begins, and then to evaluate staffing performance post-hire. Effective recruiting organizations rely on customer feedback to be successful. However, customer satisfaction should never be viewed as a stand-alone metric because it can be misleading.

• Source of Hire: Data is driven by the percentage of new hires from each defined candidate source. Data is also driven by the percentage of hires per source, with highest on-the-job performance and tenure rates. Tracking source of data information allows management to better understand the quality of their sourcing Strategy. This metric also helps recruiting managers see sourcing channels in terms of outcomes, not just sheer numbers.

• Referral Rates: Data is driven by the percentage of hires from referrals generated by the recruiter. Referral programs are most commonly focused on generating referrals from the greater employee population. Referrals generated by recruiters directly soliciting them from prospective candidates and new employees will have a measurable and positive impact on the quality of hire (studies show referrals make better performing hires), cost-per-hire (little to no cost for these referrals), and time-to-fill ratios.

• Candidate Satisfaction: Data is driven by the percentage of new hires who are satisfied with the hiring process as judged by a candidate survey. Candidate satisfaction surveys drive recruiting organizations to have a greater focus on the quality of service provided to each candidate, which has a positive impact on the brand positioning/employment branding of the company. Additional candidate metrics may also be valuable from candidates who were not selected, and candidates who declined offers. These last two groups are often overlooked, but they can provide valuable information about your recruiting operations.

• Pipeline Development: Data is driven by the number of potential candidates the recruiter has developed relationships with for key strategic positions. Data is managed through an effective CRM system. Similiar to tracking pipeline development of sales professionals, measuring recruiter-developed candidate pipelines can have a dramatic improvement on time-to-fill (candidates are already in process for commonly needed positions), cost-per-hire (pipeline candidates have no additional cost associated with placing them), and quality of hire.

Companies can decrease their time to fill and decrease their cost per hire, but if they can increase their quality of hire and quality of service, the entire game changes. Better employees translate into higher performance, more revenue, and higher profits. By using the right metrics you will encourage recruiters to focus their behaviors on the causes and not the symptoms of recruitment success. The combination of having the right recruiter with the right measurements will lead each recruiter to focus on finding the right candidate