Quality of hire metrics and why you must measure it

What Does Recruiting Really Know About Quality of Hire

© Dr John Sullivan

www.drjohnsullivan.com

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Six topics for today

1. Introduction

2. What is and what is not quality of hire

3. How it supports the business case for funding

4. How it can help improve the sources that you use

5. Different components of performance to consider

6. Typical errors to avoid

Introduction to quality of hire

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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

Quality of hire… will impact you for years

Always… “hire the best - "A" people. As soon as you hire a B, they start bringing in Bs and Cs"

Source: Jay Elliot in “The Steve Jobs Way”

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

Two quick quotes… on why quality matters

“You can't improve what you don't measure and generally, whatever you measure… improves” – HP Motto

“Quality is remembered long after price is forgotten” – Gucci Family Motto

What is and what is not quality of hire?

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Part II

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What is quality of hire

Quality 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”)

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What is quality of hire

Quality of hire is… (Continued)A measure that can be prioritized and

focused… covering only high-impact jobsIt’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)

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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 comparisonsIt is not cost per hire

How it helps the business case for funding

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Part III

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Quality of hire starts by understanding the dollar value of a top performer

The value (on average) of top performers in a job whose base salary is less than $100,000 = 14 times salary

In a job whose base salary is $100,000 - 250,000 = 28 times salary

Source: Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People, Portfolio/The Penguin Group (2005)

The performance differential is larger at Google

One top-notch engineer is worth “300 times or

more… than the average

…

we would rather lose an entire incoming class of engineering graduates than one exceptional

technologist.”14

Alan EustaceSenior Vice President, Engineering and Research

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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)

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Benefits of measuring the quality of your hires

Business benefits obtained by measuring QoHIt 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)

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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 preciselyYou 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

How it can help you to improve the sources that you use

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Part IV

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QoH can tell you which sources are most effective

Aricent Corporation

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Steps

Steps in identifying the most effective sources

1.Identify high producing hires (top 25%) in each major job family after 6/12 months of work

2.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 them

4.Working with the CFO, estimate the dollar value of the differential in performance… between high performing hires and average hires

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QoH improves source selection

Steps in identifying the most effective sources

5. Calculate the average cost of using each source

6. Calculate the return on investment for each individual source (cost versus value returned)

7. Repeat the process for weak performing hires

8. Then, proactively shift resources to high-value sources and away from the low value ones

9. Educate recruiters and managers about the best /worst sources for each job family

10.Reward recruiters for utilizing effective sources

Different components of performance to consider including

in your metric

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Part V

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20 possible performance factors to consider

The 3 most important performance factors

1. 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 that utilized each one of these three metrics

(Source: Aberdeen group, The Global War for Talent, June 2007)

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Performance factors to consider

Other performance factors to consider

4. Higher innovation rates for new hires (this may also include patents issued)

5. Higher diversity rates for new hires

6. Differential in customer service ratings

7. % of hires rated as high potential for leadership

8. Bonus /salary percentage differential

9. Differential in promotion rates

10. Performance in training /certification classes

11. Agility, they did several jobs >

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Performance factors to consider

Other performance factors to consider

12. Scores on forced rankings

13. Goal / MBO attainment

14. 360-degree feedback scores

15. # of company awards or recognition that they receive

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20 performance factors to consider

Negative performance factors to consider

16. Termination rates for cause

17. Quality of work including error / reject rates

18. % placed on performance management

19. % of new hires rated as “not meeting expectations”

20. Excessive attendance issues / absenteeism

QoH performance factor commonality

Retentio

n Rate

s

Perform

ance

Apprai

sal S

crores

Man

ager

Satisfa

ction

Actual

Perform

ance

Prom

otion R

ates

MBO A

ttain

men

t

Bonus Com

pensa

tion

0%

10%

20%

30%

40%

50%

60%

70%

80% 74%

38%

46%

19%

11%15%

3%

Source: 2009 DJS ERP Design & Program Performance Benchmark Study; n=241

Typical QoH errors to avoid

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Part VI

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Errors to avoid

Common 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 >

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Common problems that you should expect

5. Including too many performance factors in your formula, making it difficult to calculate

6. Assuming standard performance appraisals are accurate & unbiased

7. Failing to gain access to existing corporate (non-HR) productivity data

8. Failing to quantify the QoH impact on revenue

9. Not making a single individual accountable for measuring/tracking quality of hire information

10.Failing to link QoH results directly to individual recruiters and managers >

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13 common problems that you should expect

11.Not rewarding recruiters and managers that produce quality hires

12.Not getting advice from quality control or six sigma black belts on how to measure quality

13.Producing good hires but placing them poorly

Any additional questions?

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Did I make you think?