Quality of hire metrics and why you must measure it


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Explaining the value of measuring the quality of hire in recruiting

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Quality of hire metrics and why you must measure it

  1. 1. What Does Recruiting ReallyKnow About Quality of Hire © Dr John Sullivan www.drjohnsullivan.com 1
  2. 2. Six topics for today1. Introduction2. What is and what is not quality of hire3. How it supports the business case for funding4. How it can help improve the sources that you use5. Different components of performance to consider6. Typical errors to avoid
  3. 3. Introduction to quality of hire 3
  4. 4. CEO’s love QoH! C-Level executives rated new hire quality as the #1 most important HR performance metric, out of 20 possible HR metrics It was rated 9.6 out of 10 (The next closest, at 9.3, was line manager satisfaction with HR services) Staffing.org survey Impress the CEO, Feb 2005
  5. 5. Quality of hire… will impact you for yearsAlways… “hire the best - "A" people.As soon as you hire a B, they start bringing in Bsand Cs" Source: Jay Elliot in “The Steve Jobs Way”
  6. 6. Quality of hire usage 58% of surveyed firms measure QoH Source: Aberdeen group The Global War for Talent June 2007 Firms that have measured quality of hire include: Google, Ernst & Young, T-Mobile, Vanguard, Aricent, United Health, Intuit, Seagate, U.S. Army and Dell
  7. 7. Two quick quotes… on why quality matters “You cant improve what you dont measure and generally, whatever you measure… improves” – HP Motto “Quality is remembered long after price is forgotten” – Gucci Family Motto
  8. 8. Part IIWhat is and what is not quality of hire? 8
  9. 9. What is quality of hireQuality of hire (aka Q of H, QoH or performance improvement in new hires)Is an approach for demonstrating to executives and hiring managers… the effectiveness and impact of the hiring process on business resultsIt is a metric that should be developed in conjunction with the CFOs office… to ensure its accuracy and credibilityIt is a “delayed assessment” measurement that begins after the “new hire” starts working (Note: if you want a immediate measure of quality, an alternative is… “Competencies of new hires”) 9
  10. 10. What is quality of hireQuality of hire is… (Continued)A measure that can be prioritized and focused… covering only high-impact jobsIt’s results are reported both… as the % of improvement over last year… and in it’s dollar impact on revenue (i.e. the 12% improvement in quality of hire over 122 hires, resulted in an increase in revenue of $10.5 million)It provides data for the second half of the equation for the ROI of the recruiting function (Return) 10
  11. 11. What is not quality of hireIt is not a… quality of applicant / candidate/ finalist measure (i.e. the % of qualifications met)It is not a skill and competency assessment on new hires (although many organizations also choose to measure the skills and competency levels of new hires)It is not a managers subjective perception/ rating of quality of hire… as reported in a surveyIt is not a manager satisfaction measure with the hiring processIt is not designed for external comparisonsIt is not cost per hire 11
  12. 12. Part IIIHow it helps the business case for funding 12
  13. 13. Quality of hire starts by understanding the dollar value of a top performerThe value (on average) of top performers in a jobwhose base salary is less than $100,000 = 14 timessalaryIn a job whose base salary is $100,000 - 250,000 =28 times salarySource: Topgrading: How Leading Companies Win by Hiring, Coaching, andKeeping the Best People, Portfolio/The Penguin Group (2005) 13
  14. 14. The performance differential is larger at GoogleOne top-notch engineer is worth “300 times or more… than the average … we would rather lose an Alan Eustace entire incoming class of Senior Vice President, Engineering and engineering graduates Research than one exceptional technologist.” 14
  15. 15. The quality of hire measure… helps you understand the value of hiring a game changer If you hire a single game changer at Google (where the average employee generates $1.3 million in revenue each year) And if that game changer produces the expected 300x an average employee’s performance ($1.3 X 300 = $390) For every one you hire… you add over $390 million in revenue every year And if the new hire stays for only two and half years… that single hire will generate over $1 billion in added revenue (Which is why Google is a hiring machine) 15
  16. 16. Benefits of measuring the quality of your hiresBusiness benefits obtained by measuring QoHIt demonstrates to senior managers that “hiring right” has a significant dollar impact on workforce productivity, business revenue and ROIIt will also demonstrate the tremendous costs to the business that results from a bad hire (i.e. frustrated managers, accidents, customer impacts and lost revenue) 16
  17. 17. Benefits to the recruiting functionIdentifying effective sources saves recruiter time and $It helps you identify hiring process problemsIt shows that recruiting is “businesslike” because it also measures quality preciselyYou may get increased budget resources after you provide executives with proof that you are hiring top performers, game changers and innovatorsIt enables accountability and is a good “lever” to get the attention of weak hiring managers 17
  18. 18. Part IVHow it can help you to improve the sources that you use 18
  19. 19. QoH can tell you which sources are most effective Aricent Corporation 19
  20. 20. StepsSteps in identifying the most effective sources1.Identify high producing hires (top 25%) in each major job family after 6/12 months of work2.Use your ATS to determine the primary source of hire for the top 25%3.Alternatively, ask each new hire during orientation… which source(s) had the most impact on attracting them4.Working with the CFO, estimate the dollar value of the differential in performance… between high performing hires and average hires 20
  21. 21. QoH improves source selectionSteps in identifying the most effective sources5. Calculate the average cost of using each source6. Calculate the return on investment for each individual source (cost versus value returned)7. Repeat the process for weak performing hires8. Then, proactively shift resources to high-value sources and away from the low value ones9. Educate recruiters and managers about the best /worst sources for each job family10.Reward recruiters for utilizing effective sources 21
  22. 22. Part V Different components ofperformance to consider including in your metric 22
  23. 23. 20 possible performance factors to considerThe 3 most important performance factors1. On-the-job performance output of new hires (or alternatively, their performance appraisal scores compared to last year or a previous hiring process) 70%*2. Time to minimum acceptable productivity level 58%*3. Retention rates for new hires 48%** This number represents the percentage of “best in class” firms thatutilized each one of these three metrics(Source: Aberdeen group, The Global War for Talent, June 2007) 23
  24. 24. Performance factors to considerOther performance factors to consider4. Higher innovation rates for new hires (this may also include patents issued)5. Higher diversity rates for new hires6. Differential in customer service ratings7. % of hires rated as high potential for leadership8. Bonus /salary percentage differential9. Differential in promotion rates10. Performance in training /certification classes11. Agility, they did several jobs > 24
  25. 25. Performance factors to considerOther performance factors to consider12. Scores on forced rankings13. Goal / MBO attainment14. 360-degree feedback scores15. # of company awards or recognition that they receive 25
  26. 26. 20 performance factors to considerNegative performance factors to consider16. Termination rates for cause17. Quality of work including error / reject rates18. % placed on performance management19. % of new hires rated as “not meeting expectations”20. Excessive attendance issues / absenteeism 26
  27. 27. QoH performance factor commonality80% 74%70%60%50% 46%40% 38%30% 19%20% 15% 11%10% 3% 0% Retention Performance Manager Actual Promotion MBO Bonus Rates Appraisal Satisfaction Performance Rates Attainment Compensation ScroresSource: 2009 DJS ERP Design & Program Performance Benchmark Study; n=241
  28. 28. Part VITypical QoH errors to avoid 28
  29. 29. Errors to avoidCommon QoH process errors:1.Assuming that measuring QoH is either too difficult or unnecessary2.Confusing quality of candidate with on-the-job performance of new hires3.Not involving the CFO early on in the development of the metric4.Failing to use pre-existing measures of employee performance and output > 29
  30. 30. Common problems that you should expect5. Including too many performance factors in your formula, making it difficult to calculate6. Assuming standard performance appraisals are accurate & unbiased7. Failing to gain access to existing corporate (non-HR) productivity data8. Failing to quantify the QoH impact on revenue9. Not making a single individual accountable for measuring/tracking quality of hire information10.Failing to link QoH results directly to individual recruiters and managers > 30
  31. 31. 13 common problems that you should expect11.Not rewarding recruiters and managers that produce quality hires12.Not getting advice from quality control or six sigma black belts on how to measure quality13.Producing good hires but placing them poorly 31
  32. 32. Did I make you think?Any additional questions? 32