Cost per hire, the most commonly measured statistic in recruiting, has some unintended consequences. In many cases, it contributes to a perception of recruiting as a cost center or administrative overhead. It also creates a performance metrics for recruiters where they are by necessity more interested in quantity versus quality. Measuring recruiters on quality of hire is the first step towards breaking the cycle. Quantity versus Quality I worked with an organization many years ago that measured their recruiters on two statistics: cost per hire and number of positions filled. The recruiters that looked best? High-volume customer service recruiters who could hire 100 people a month for under $1,000 per hire. The recruiters that looked the worst? Specialized skills recruiters who found five to ten developers and analysts per month at a cost of over $10,000 per hire. According to these statistics, the customer service recruiters were the most efficient, yet the specialized skills recruiters were in fact hiring the people that were most crucial to the development and growth of the business. Your devotion to cost per hire, or even staffing efficiency ratio (cost per hire divided by salary recruited) often costs you something else besides money: respect. If all you are doing is trying to lower costs, you often unknowingly do so at the expense of quality and value. And the next time your company goes into cost-cutting mode, which cost centers do you think show up first? The ones that have demonstrated no relative value to the business or bottom line. Perhaps even worse, cost-based staffing metrics send a very bad message to your recruiting teams: ignore the impact of finding a top performer for a relatively small extra cost and get the cheapest person hired as fast as possible. Quality-of-hire metrics are designed to send the opposite message: get the best person possible for the job. On my blog recently, I hosted a fascinating conversation about the various types of quality-of-hire metrics with people like Heather Hamilton, Rob McIntosh, and Chris Barrick from Microsoft and Jeff Hunter from EA. The conclusion I drew from the dialogue is that although quality of hire sounds like a single statistic on the surface, it is actually many statistics with two major applications: value and efficiency. Value-Based Quality of Hire The first major way that quality of hire is used is to prove the value of human capital initiatives. The ideal statistic to use in this area is profit, but the challenge is that not many positions are directly tied to profit. For instance, a business analyst may perform a vital function in measuring and continually improving a crucial business process, but how do you quantify this in dollar figures? Sales, customer service, general management, retail, and business development roles are the easiest positions to tie to profit. Heads of business units and product lines can often also be measured in this way. For a great primer on how to do this, see Randall Birkwood’s excellent article on metrics for executives. Randall also gave a great talk at the most recent spring ER Expo, where he showed a comparison spreadsheet he uses to measure the relative value of various sources of hires for retail salespeople tied to profit, retention, and productivity. This type of effort paves the way for increased investment in human capital initiatives and helps ensure that your team is not the first to be put on the chopping block when times get tough. Recruiters who source for roles with direct links to revenue can be measured in terms of the number of people they brought in who:
- Performed above average in dollars generated
- Performed below average in dollars generated
- Performed well above average in dollars generated (top performers)
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Many companies also use revenue per employee as an indicator of employee value. This has some merit and is something that recruiting departments should always be tracking and working to optimize, but it is just as affected by market conditions as it is by human capital valuations. As an extreme example, look at what happened to Pfizer recently. Such a significant revenue drop can’t be directly tied to human capital initiatives ó this is mostly due to an unfortunate, unanticipated shift in market conditions. Efficiency-Based Quality of Hire Quality of hire can also be used as an efficiency metric to help optimize sourcing efforts. Performance reviews, hiring manager satisfaction, retention, and productivity (including revenue) are all very meaningful metrics to examine if you are looking to optimize your sources, technologies, and staffing processes. These quality-of-hire metrics can also help you demographically target the types of people you should be direct sourcing for (as Rob McIntosh pointed out on my blog recently). In the future, your hiring process management technology platform will do a lot of this automatically, but today it is a challenging exercise in data collection from disparate sources that is very worth it. Individual recruiter performance can also be tied to the statistics above. A common counterargument is that recruiters have little effect in these areas: they don’t control someone’s performance (and thus shouldn’t be held accountable); the hiring manager is the main reason why people leave or stay; and the recruiter doesn’t even decide who to hire, for that matter. Another argument is that statistics like hiring manager satisfaction are far too subjective to measure recruiters on. These are all great points, but the point of measuring recruiters against these statistics is not to place blame, give credit, or create objective comparative statistics. The point is to optimize team and individual performance towards the one goal that matters most to an organization: quality. Once you look behind the curtain, the numbers won’t lie. When recruiters can be measured on quality, some recruiters will simply be better than others at bringing in high impact, more productive, and longer tenured employees. These recruiters are typically much better at managing client expectations and ensuring overall hiring manager satisfaction. Their impact on your organization is (almost) immeasurable.