MEASURE UP: Measuring and Increasing Quality of Hires

MEASURE UP: Measuring and Increasing Quality of Hires THE LEADING RECRUITMENT SOLUTION FOR PROFESSIONAL TALENT Position Accomplished. TM Measure Up: Measuring and Increasing Quality of Hires | 1

EXECUTIVE SUMMARY: QUALITY IS THE METRIC THAT MATTERS MOST Among corporate, retained and contingency recruiters, many performance metrics are in widespread use. Most of them – including time-to-fill, cost-to-fill and interview-to-hire ratio – measure the Measure Up: Measuring and Increasing Quality of Hires recruitment process itself. They primarily are used to evaluate and is the first in a series of optimize the performance of individual recruiters or the recruitment white papers that investigates function within an organization. the metrics most used by recruiters. Future papers But according to interviews conducted among nearly two dozen in the series will explore corporate recruiters and agencies, these metrics fall short in measuring best practices and recruiter the real value to the corporation that the recruitment function delivers. behaviors that help achieve The reason being, they fail to indicate the quality of the final product. high performance, and will In other words, they bear no relation to the value new hires contribute continue to track recruitment metrics usage and innovation. to the organization over time. For more and more recruiters and The goal of the series is to hiring managers, “quality-of-fill” is the emerging metric that best provide information from top measures this more meaningful (and strategic) contribution. industry professionals to help maximize recruiter success. Quality-of-fill, however, is a relatively new idea: while virtually all recruitment and HR executives interviewed for this white paper agreed that quality-of-fill is the best definition of “true success” in recruitment, only some currently measure it. Those who do believe they are pioneering a new, potentially more valuable kind of metric that is gaining traction across the recruiting landscape. While this white paper examines many performance metrics in use in today’s marketplace, and explores the value each metric can convey, the paper’s emphasis is on the smaller set of metrics that recruiters feel matter most in terms of driving performance and demonstrating effectiveness. Measure Up: Measuring and Increasing Quality of Hires | 2

INTRODUCTION In our rapidly evolving, globally connected economy, it is impossible to under- estimate the value of efficiently finding the right fit for business-critical job vacancies. In this regard, recruitment is not only among the most quantifiable human resource activities, it also has perhaps the greatest potential to contribute positively to the success and well being of an enterprise. The right recruitment metrics can help to evaluate the recruitment function and enhance the performance of individual recruiters. These metrics also can identify systemic impediments to recruitment performance, and shed light on how to improve performance. Of note, many of the recruiters and experts interviewed for this paper also believe that metrics play an even more important role in recruitment at the professional ($100,000+) level. In the words of one of the executives interviewed for this white paper, “The more senior the hire, the more work your recruiters have to do. And, the more work recruiters are doing, the more opportunity you have to benefit by careful analysis of meaningful metrics.” MEASURING THE RECRUITMENT FUNNEL Most recruiters interviewed describe the recruitment process as a “funnel,” with dozens or even hundreds of applicants at the top winnowed to a few, or one, at the bottom. Several likened the recruitment funnel to the more widely “ discussed marketing funnel, and the metaphor is apt. Both start with an advertisement, job posting or calls out to a targeted Recruiting today is a race. audience in order to generate response; both step a diminishing number of You can build more product respondents through multiple levels designed to end in a “sale.” In fact, many in order to meet demand; but HR and recruitment executives referred to recruiters’ “creative selling ability” in recruitment, the ‘product’ is as critical to moving the best candidates to the next step in the funnel. people. For any given opening there is a limited pool of “But there is one critical difference – recruiting today is a race,” one corporate candidates, and whoever recruitment executive said. “You can build more product in order to meet “ gets to them first is going to win that race. Recruiting is the ultimate supply-and- demand; but in recruitment, the ‘product’ is people. For any given opening there is a limited pool of candidates, and whoever gets to them first is going to win that race. Recruiting is the ultimate supply-and-demand economy.” demand economy. Recruitment funnel statistics are the metrics recruitment managers turn to when looking for an edge in that race (see Figure 1). “I look at the funnel through two lenses – activity and efficiency,” explained Peter V. DeBellis, a former corporate human resources executive now independently consulting in Washington, D.C. Measure Up: Measuring and Increasing Quality of Hires | 3

Typical Measures Analytical Potential Number of Identifies recruiter • Job Posts/Calls Out performance issues • Applicants/Calls Back • Screened-In Candidates Reveals gaps in process or (Connects) efficiency for optimization • Recruiter Interviews • Hiring Manager Interviews Identifies best sources of candidates and/or offers, • Offers correlated to specific job • Acceptances (Hires) functions/levels Figure 1: Recruitment Funnel Metrics Like DeBellis, most executives interviewed for this white paper measure raw numbers at every level of the funnel to ensure that their teams are achieving sufﬁcient activity levels to get results. The following numbers, described by a third-party recruiter, were representative of the averages heard from all those interviewed: “I will often reach out to 150 All those interviewed zeroed people, as potential candidates and sources. On a challenging search, it might in on a 5-to-1 ratio of hiring be up to 200. Maybe I screen-in, realistically, 20; I meet with 10-to-12; from manager interviews to hires. those I come back with a short list of 4-6 candidates that I present to the hiring manager.” Every person interviewed pointed out that these numbers vary signiﬁcantly depending on the job function and seniority level, so metrics analysis must be tuned precisely to those two elements to be most effective. One number, however, seemed to hold steady. All zeroed in on a 5-to-1 ratio of hiring manager interviews to hires as ideal. Measure Up: Measuring and Increasing Quality of Hires | 4

THE HIRING MANAGER “COMFORT ZONE” Many HR and recruitment executives explained that this says more about human nature than anything else – it’s the number of candidates that makes the hiring manager comfortable that he or she has met enough people to make a sound decision. One recruiter said her company went so far as to offer incentives for her to achieve a 3-to-1 ratio – but her hiring managers demanded more candidates. Beyond raw activity levels, inefficiencies at specific points in the funnel can be teased out of metrics analysis when numbers don’t align with their funnel counterparts above and below. That’s when recruiters and their managers will look deeper and experiment with process changes, or different sources and sourcing approaches, to improve results. For example, recruiters can optimize the efficiency of their funnel by tracking back from screened-in candidates, or candidates to whom offers are made, to the sources from which those candidates originated, and then adjust their sourcing strategy accordingly. Again, nearly everyone interviewed for this paper emphasized that this analysis must be done separately by job function and seniority level – sources perform differently for different jobs. MEASURING TIME-TO-FILL If recruiting is a race, it is no surprise that time is considered one of its most important metrics. Once a company determines that it needs a position, that company wants the position filled now. HR and recruitment executives interviewed for this white paper were unanimous in saying that time-to-fill is the number-one metric that senior management “ cares about, more than cost-to-fill – and often far more. “ Any tool that can increase quality in a shorter period of “The longer a position is open, the more expensive it becomes for the company,” explains Bryan McShane, senior account manager for TheLadders, the leading recruitment solution for professional talent. “You have the time is what we’re looking for. opportunity cost of an unfilled open position, and you have the cost of the recruiter’s time who is focused on filling it.” One recruitment manager took McShane’s comment a step further: “When we look at where we source candidates, we are trying to analyze how to get the highest quality candidates in the shortest amount of time,” he explained. “Any tool that can increase quality in a shorter period of time is what we’re looking for.” The drawback with time-to-fill is that it can be a tricky metric to zero in on; yet deep analysis can yield surprisingly valuable insights (Figure 2). The tricky part is separating the time that recruiters have control over from other parts of the company’s business process that are the domain of department managers, their supervisors, executive management or even legal. Measure Up: Measuring and Increasing Quality of Hires | 5

Typical Measures Analytical Potential Days to Reveals business process • Approve Position Requisition issues • Prepare Job Description/ Performance Profile Identifies recruitment • Present to Hiring Manager process inefficiencies (Recruitment Time) • Accept • Start Figure 2: Time-to-Fill Metrics Companies can define the beginning of the time-to-fill measure in different ways. Some begin with budget approval for an open position, but it can take weeks or even months for an open requisition to be approved for hire – and then more time before a usable job description is written and approved. Separately measuring the time-to-fill components listed in the chart and then comparing them with standard expectations can lead to important insights. Angela Scalpello, senior vice president, human resources for PR Newswire, analyzes the difference between “days to present” and “days to accept” in order to identify inefficiencies in interview processes. “It shows me how quickly we can move a candidate through the process,” Scalpello says. THE TIME IMPACT OF PROCESS INEFFICIENCIES Typical process efficiency issues identified by time-to-fill analysis involved either business process problems in the approval-to-hire process, or delays at the hiring manager interview stage. DeBellis, the Washington-area consultant, tells a story about a medium-sized public company in a high-growth phase where the perception was that recruitment wasn’t happening fast enough. “The HR team was getting hammered,” DeBellis says. A tracking system was installed, and time-to-fill analysis showed that a multilevel approval process was eating up time before recruitment began. The solution was to reduce the number of approvals to three for any position, and to build an automated system in which requisitions auto-approved after 48 hours. “We found it wasn’t that managers didn’t want to approve; but it was a fast-moving company and the higher up you go in the organization the less likely it is that someone is going to put signing requisitions at the top of the to-do list today.” Measure Up: Measuring and Increasing Quality of Hires | 6

In addition, many of those interviewed for this white paper said it is important to eliminate outliers when evaluating time-to-fill metrics. For example, one recruiter tells of a position he filled in three days: “I had met the right guy two weeks before. I got a call for the job on a Friday, remembered him and sent him in on Monday. The hiring manager brought him back on Tuesday and To avoid skew from outliers, made the offer.” Another described an 18-month ordeal to find the president use medians instead of of a software company. For these reasons, it is best to use medians instead of means when calculating means when calculating time-to-fill averages. time-to-fill averages. Most agreed that 90 days was, as one recruitment manager put it, “the gold standard” of time-to-fill when averaging together all positions. All those interviewed, however, emphasized that benchmarks must be established individually for different job levels and functions. “Does that average mean it takes 90 days to hire a finance role? No! It takes 40 days to hire the finance person and 120 days to hire the FDA submission person,” explained one HR executive. MEASURING COST-TO-FILL HR and recruitment executives interviewed have a fairly common view of cost metrics: nearly everyone tracks costs in detail (see Figure 3). According to PR Newswire’s Scalpello, Staffing.org, Inc.’s data for 2009 cites a national average recruitment cost ratio (RCR) of 12.1% (RCR is equal to the total of all recruitment costs divided by the total compensation of all hires). PR Newswire’s RCR is well below that average, she said – and tracked closely. There also was a clear consensus, however, that when you are carefully managing other metrics and optimizing your recruitment activities based on the analysis they yield, costs will naturally be optimized as well. Typical Measures Analytical Potential Cost of • Recruiter Salary/Fee • Job Posts/Advertising Identifies most cost-efficient • Signing Bonuses candidate sources • Candidate Travel/Hosting • Hiring Manager ‘Soft’ Cost • Rejected Offers • Recruitment Cost Ratio (RCR) Figure 3: Cost-to-Fill Metrics Measure Up: Measuring and Increasing Quality of Hires | 7

Another consensus was that the biggest costs in the recruitment process are the recruiter’s salary (or fee, if using a third-party agency); the cost of posting and advertising; and the cost of rejected offers. Those rejected offers can be surprisingly expensive, as well as emotionally “ painful for organizations. “If I go 0-for-5 in on-site department interviews and I don’t make an offer – or if I make an offer and it is rejected – that’s If I go 0-for-5 in on-site a disaster,” one recruitment executive said. “It costs thousands of dollars in “ department interviews and I don’t make an offer… that’s a disaster. And now we have our hiring managers’ time, money to host the candidates, my time and HR resources. And now we have to start over. That is a disaster.” The best way to avoid such cost disasters, however, is not necessarily through to start over. cost metrics. By analyzing recruitment funnel and time-to-fill metrics, HR and recruitment executives can optimize recruitment operations to get the most out of their recruiters, make most efficient use of their posting and advertising – and avoid rejected offers. Cost metrics do come into play during that analysis. For instance, advertising and posting sources can be compared based on cost per applicant, or cost per hire, and adjustments made to increase efficiency and lower total cost. As with all recruitment metrics, specialization has a big effect. The more specialized a job function, the more the search is likely to cost, and the longer it will take. Length, too, adds to the cost of search in many ways, as discussed in the time-to-fill section. Indirect costs also are best managed through process efficiency. “There is time you are taking from the hiring managers, and peers and colleagues who are interviewing candidates. If I am sending 10 candidates through, eight of whom the hiring managers hate, at a high level that process is going to cost me more than if I send three candidates through and they love two of them,” says DeBellis. “If you focus on efficiency at the top and middle of the funnel, you might spend more hard dollars but save a ton of soft dollars.” There is one cost, however, that HR executives have come to believe dwarfs all others (even rejected offers): the cost of bad hires. Bad hires can diminish the effectiveness of a department, delay important initiatives, reduce revenue and drag down morale. “From a corporate perspective, HR recruiters should be judged heavily by making sure the bad hires don’t get made,” says one corporate HR executive. This is one of the primary reasons for the rise of quality-of-fill metrics, which are explored in the next section. Measure Up: Measuring and Increasing Quality of Hires | 8

MEASURING QUALITY-OF-FILL “ Candidate quality has been a topic of discussion among HR and recruitment executives for years. Until recently, however, these have been subjective Quality-of-fill is the Holy discussions that led primarily to…more discussion. Only now are companies “ Grail. Quality-of-fill is where the cutting-edge work is being done; that’s where you can bring your game to the and independent experts becoming focused on the development of quantifiable metrics that can be replicated, analyzed and acted on. Because quality-of-fill metrics are still under development, there is not yet widespread agreement on exactly what to include, how to make the calculations, next level. or how to analyze the results. Virtually everyone interviewed did agree, however, that quality-of-fill metrics are “the next big thing.” “We’re beginning to hear more and more companies talk about what the hire brings to their table. It’s definitely becoming the new way to measure recruiter success,” says Bill Fanning, Director of Outside Sales at TheLadders. DeBellis, the Washington area consultant, was more emphatic: “Quality-of-fill is the Holy Grail. A lot of the metrics we’ve talked about so far, people generally ‘get it.’ They can do a better job, but they generally get it. Quality- of-fill is where the cutting-edge work is being done; that’s where you can bring your game to the next level.” Typical Measures Analytical Potential • Retention Determine contribution to • Performance Evaluations the company made by the recruitment function/ • Number of First-Year Hires in individual recruiters High-Potential Programs • Promotions Analyze the quality of • New Hire Surveys onboarding and orientation Figure 4: Quality-of-Fill Metrics The HR and recruitment executives interviewed for this white paper described five different factors to consider in quality-of-fill calculations, shown in Figure 4. The five should be used in conjunction with one another as much as possible. Beyond this, however, there were varying views of the best measurement approaches. For example, different executives suggested optimum times for measuring retention between three months and five years. Measure Up: Measuring and Increasing Quality of Hires | 9

This variance is reflected in independent research, which shows that recruiters and hiring managers at 68% of U.S. corporations do not have mutually agreed upon definitions of candidate quality before recruiting starts.* 68% of U.S. corporations That said, quality formulas being considered ranged from straightforward to do not have mutually agreed complex. Among the more straightforward was a recruiters’ “Net Quality Score” upon definitions of candidate modeled after the Net Promoter Score used in marketing. The Net Quality quality before recruiting starts. Score described is the sum of all hires in the last year, minus those who scored in the bottom half of all employees at their first performance review. At the more complex end of the spectrum, executives considered factoring together average retention rate, performance evaluation scores and promotions to create an index, or to use them alongside one another in an integrated analysis. Future white papers in the Measure Up series will monitor and report on the development of this important emerging metric. CONCLUSION As this white paper makes clear, a multitude of metrics are being used by recruiting and HR professionals to optimize their efforts to source and hire top-qualified candidates. Accurately analyzed and effectively applied, these metrics can have a significant impact on recruiting success. However, the rapidly emerging quality-of-fill metric is demonstrating the potential to “raise the bar” in terms of demonstrating true effectiveness, ROI and enterprise value. Note: Please see the Key Takeaways on the following page for actionable insights gleaned from this white paper. * “Candidate Quality - Rating Your Recruiters,” Staffing.org, 11 February 2010 Measure Up: Measuring and Increasing Quality of Hires | 10

KEY TAKEAWAYS Based on more than 20 interviews of HR and recruitment executives, the following takeaways and recommendations emerged. 1. Analyze activity at every level of the recruitment funnel, and analyze efficiency by comparing activity at adjacent levels 2. Optimize recruitment operations for speed in finding the right candidate – remember, “Recruiting today is a race” 3. Shoot for 5 top-gun candidates to present to the hiring manager 4. Benchmarks for each metric must be tuned separately for each job function, specialty and seniority level 5. Use medians instead of means when calculating time-to-fill averages to avoid skew from outliers 6. Separate time-to-fill into distinct elements and measure each one to find inefficiencies that suggest process problems 7. Track backward from your winning candidates to the sources they came from so you can focus your spend on sources that surface the best candidates fastest 8. Account for the cost of rejected offers 9. Account for specialized job functions – such searches cost more and take longer 10. Keep recruitment cost below the national average of 12.1% of the total compensation hired 11. Develop candidate quality definitions agreed on by recruiters and hiring managers before recruiting starts 12. Join the quality-of-fill bandwagon: evaluate the retention, promotions and performance evaluations of new hires over time, and tie the results back to the recruiters who brought them in About TheLadders TheLadders is the leading recruitment solution for professional-level talent. With its unmatched database of 3.6 million pre-screened $100k+ candidates and easy to use tools and services to surface qualified, responsive job seekers, TheLadders enables corporate and agency recruiters to find the best professional talent to fit their needs, fast. Visit recruitladder.com to learn more. Measure Up: Measuring and Increasing Quality of Hires | 11

MEASURE UP: Measuring and Increasing Quality of Hires

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