Should the Recruiting Department Be Charged with Financial Malfeasance?

May 19, 2010

Earlier this year I presented a financial model that demonstrated that on average, hiring a C+ person instead of a B+ person costs a company somewhere between 50 and 100% of the person’s annual compensation. This becomes a huge waste of resources if you do this more than once. For example, if you’re hiring just one $60,000 C+ person instead of a B+ person, the net loss is $30,000-60,000 per year. If you’re hiring 1,000 people and a third of them are ranked C+, collectively they’re costing your company $10 million-$20 million in pre-tax profit each year. You don’t have to be a financial analyst to suggest that your CFO and CEO might be interested in this level of recruiting and hiring malfeasance, as well as your stockholders, among others.

Now to make matters worse.

At the ERE 2010 Spring Expo in San Diego I contended that we were in for a near-term hiring tsunami of major proportions, forcing companies to hire the C+ in droves. As the recovery accelerates, new hiring needs, an increase in voluntary turnover, and sideliners rejoining the labor pool will start a mad scramble to fill seats with anyone who looks like C+ person, much less a B+. In the national employment report issued on May 7th two-thirds of this tsunami forecast came true. The other third will become apparent in the next few months. It will cost your company even more mega-bucks if you fall into the trap now being set.

Practically speaking, there might not be much you can do about it, since most companies have mistakenly set up their hiring process to only hire C+ level people. In fact, in doing this they’ve also set up their processes to prevent the B+ from even entering the building, other than through the back door. Of course, your company was not so naïve. You knew the last few years were aberrations. You knew that anyone could hire above-average talent in a below-average economy, especially when the supply of talent exceeds demand. But things are different now.

Q1, 2010 was a tipping point. The excess of supply of talent will quickly reverse course, and finding enough B+ level people to fill your new jobs will be much more difficult. Worse, replacing a B+ person who voluntarily leaves for something better with someone of equal caliber will be near impossible.

To put some foundation to this over-the-top scenario, let me offer this definition of a B+ person: technically qualified, consistently delivers high quality results, can overcome most obstacles without making excuses, will take on tough projects, can work 24/7 in spurts, can deal effectively with all types of people inside and outside the company and the department, often takes the lead when problems occur, self-motivated, and doesn’t need a lot of direction. Add, if the person is a manager, a B+ managers hires only B+ or better. This is a great person. Imagine the cost of losing one, or not hiring one for each position in your company.

Now consider the criteria these B+, or better people use to compare opportunities and select which one to accept. It probably consists of these factors, but feel free to edit the list based on your company’s experience and the jobs you actually fill:

Selection Criteria of Top People (B+ and Better)

  1. Growth opportunities — the job offers a chance to progress rapidly, assuming successful performance.
  2. Job content and satisfaction — doing work they like to do.
  3. Job stretch — taking on a bigger job rather than a lateral transfer.
  4. Company-related factors — financial stability, brand, image, culture, and industry.
  5. Work/life balance — a career opportunity coupled with a chance to have a somewhat normal life outside of the office.
  6. Compensation and benefit package — while it doesn’t have to be the best, it must be competitive.
  7. Hiring manager and the team — the hiring manager is a true leader who is going places and is a possible mentor. The team is professional and top notch.
  8. Location — convenient if possible, but most places would be considered if the job offered a career move of singular opportunity. (Note: this must be only be discussed in the context of a very slow approach to evaluating multiple opportunities within the company).

Now, I’d like to prove my contention that most companies are not targeting these people. Instead they target the how the C+ level person looks for another job and selects one over the other. In the process this approach precludes the B+ from consideration. To gain a sense of this, just answer the following questions about your companies’ hiring and recruiting processes.

  1. Do your job postings clearly define career moves or lateral transfers? If you emphasize skills and experience in your job descriptions, rather than learning and growth opportunities, you’re targeting the C+ person. This is the person who’s looking for a lateral transfer.
  2. Do you have formal processes in place that allow the B+ person to engage with your company without having to apply? If you do, does it work? This means you identify who they are, and that you track your conversion rates.
  3. Are all of your hiring managers open to conduct 30-minute “career discussions” with strong people who aren’t totally excited about working at your company and who meet fewer of the requirements listed on the job description? As the economy recovers, the best people will be reluctant to apply unless they have a chance to view your opening as a clear career opportunity, without having to make any commitments.
  4. Is it easy for the B+ person to obtain all of the career-oriented selection criteria defined above? This is what they’ll use to compare different opportunities, and if you don’t formally give it to them, you’ll unnecessarily lose many of the best.
  5. Do all your hiring managers, including those in the bottom half, know how to recruit and attract top performers? It’s hard for any manager to consistently hire B+ level talent without working hard at it. With the rush to fill positions, formal “raising the talent bar” programs can offset some of this move toward mediocrity.
  6. Do you have enough people every B+ candidate meets who are part of your B+ career track program? Most companies have a high-potential program to ensure their top 5% get managed, promoted, and rewarded effectively, but few carry this through to the top 20-25% of their workforce. If you can’t prove you offer a career track, it will be difficult convincing the B+ candidates your career story is credible.
  7. Do you have a top-down driven hiring strategy or bottoms-up? A bottoms-up strategy is top-candidate focused, aka customer-driven, designed to meet their needs at each step in their job hunting and decision-making process. Unfortunately, most companies have inadvertently and naively assigned this critical role to their ATS vendor and RPO in combination with their comp, legal, OD, and IT departments. For just one example, are your job postings uniformly manufactured by the ATS to meet legal needs or designed to appeal to the intrinsic motivators of a top person? To offset this poorly designed top-down process, a bunch of costly workarounds and special programs are required to minimize the disaster they cause.

While a few companies have effectively resisted the push to confirm to increased bureaucracy, most haven’t. They still use some mash-up of ill-conceived hiring ideas designed by the wrong people to hire the most available person, not the best person. The business and financial cost of this misguided process is far greater than the short-term satisfaction of getting a position filled on time, but somehow this impact is hidden from view. Just sum the total compensation of the C+ people in your company to gain a sense of how much this is costing your company every years. Maybe put it on chart and track this to measure your company’s overall hiring performance. So whether you want to track the cost of hiring a C+ rather than a B+, or not, it’s time to grab hold of your wallet. If you don’t, before you know it will be empty.

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