Why Cost Per Hire Is a Dumb Metric and Quality of Hire Is Not

In all the brouhaha about great new sourcing initiatives and Web 2.0 tools, how much have your recruiters and hiring managers improved their ability to hire great people, not average people?

In my opinion, we’ve downplayed what it really takes to be successful in our profession — recruiting, counseling, and closing top people who have multiple opportunities, and making sure our hiring manager clients don’t blow it.

To start refocusing on the right stuff, I’d like to nominate quality of hire as the metric to assess recruiting department performance, and relegate cost per hire to the second page.

I believe cost per hire is a misguided means to judge recruiting department performance. For one, it rewards the wrong things and ignores quality of candidate and quality of hire. For another, it’s far too tactical and narrowly focused. Worse, improving costs could degrade quality.

This is a strategic mistake of huge proportions that too many HR and recruiting managers miss entirely.

These problems go away if the focus is on measuring quality of hire first and quality of candidate as a subset. Even if recruiting is reluctant to take on the responsibility of maximizing quality of hire, it must be responsible for setting up a system to measure it. While important, measuring quality of hire is not straightforward.

Here are some ideas on how to get started on thinking about how to do it:

Yves Lermusi, the CEO of Checkster, believes good reference checking before (external) and after the hire (internal 360°) might be the best way to measure, monitor, and improve quality. He might be right, but from what I’ve seen, if the measure of candidate quality pre-hire is different than after the hire, you’re not measuring the same thing. Regardless, Yves’ point of measuring candidate quality post hire and monitoring are absolutely essential. So you should check out Checkster as a means to do this.

Here’s another perspective. I was speaking with a senior recruiting manager with a Fortune 100 company the other day. She told me her company conducted exhaustive post-hire performance reviews at the 90-day, 6-month, and 9-month time periods for new hires. These reviews were based on comparing the new hire’s performance against the performance objectives of the job. If the person fell short here, the review was expanded to include an in-depth competency evaluation. This approach seemed spot on to me. However, the recruiting manager told me under-performance was generally attributed to lack of understanding of real job needs before accepting the offer and problems with culture, especially with the working relationship with the hiring manager, once on the job. This strengthens the argument of measuring pre- and post-hire quality on the same performance standard.

However, some differ on this view. For example, after a recent ERE article I wrote on a related quality of hire article, someone sent me a detailed LinkedIn message describing his company’s approach to measuring the quality of their candidates by sourcing channel. It consisted of a detailed scorecard examining a set of criteria that mapped to the traditional job description. This included things like quality of the academic background, quality of the experience, depth of industry knowledge, and the like. This is probably not too bad, but I suspect that this was not the focus of the interview. But none of this gets at the issues involved in a post-hire quality assessment. For example, the person could be a fine person with all of the experience and academic requirements noted, but someone who was no longer motivated to do the type of work required, or someone whose style was not compatible with the hiring manager’s.

From a pre-hire standpoint, some might argue that the traditional competency or behavioral-based interview is a great way to measure pre-hire quality. My 30-year concern with this is that it still ignores job performance and managerial fit. Being competent to do the work doesn’t mean being motivated to do the work. Nor does competency or behavior measure a person’s ability to prioritize the work, handle too much work, work under pressure, work with different resources, work with comparable teams in similar situations, or work with a weak manager.

For me, it’s pretty easy to conclude that if you want quality of hire to become a useful measurement tool, you must start by measuring pre- and post-hire on the same basis. Further, the measurement standard you should use must be made on some comparison to real job needs. (Send me an email if you’d like a copy of a performance-based talent scorecard from my book, Hire With Your Head (Wiley, 2007).) This means candidates need to be measured before they’re hired on their ability and motivation to perform the actual work required, including fit with the hiring manager.

If pre- and post-hire quality measures are different (up or down) it means that the assessment process is flawed. So it’s important to use feedback from the post-hire quality assessment to change how candidates are assessed. I suspect that few companies do this; regardless, that’s a major reason and benefit for measuring post-hire quality. Then once pre- and post-hire quality assessment are the same and you have a good system for tracking quality of candidate and quality of hire, you can then move on to the more strategic quest of maximizing quality of hire. This includes improving your recruiting and sourcing skills in tandem, and tracking quality by sourcing channels, recruiters, and even hiring managers.

The whole point of this article is to suggest that quality of hire is a much more important measure than cost per hire in measuring recruiting department performance. While cost is important to track, it shouldn’t come at the expense of quality.

Focusing on the internal budget of the recruiting department is insignificant in comparison to the impact the thousands of people the recruiting department hires has on their company. What’s more exciting is that the tools are now available to actually measure and maximize hires, rather than just talk about it.