MEASURE UP: ‘Quality’ Metrics Drive Quality Hires

Measure Up: ‘Quality’ Metrics Drive Quality Hires | 1

MEASURE UP:‘Quality’ Metrics Drive Quality Hires

THE LEADING RECRUITMENT SOLUTION FOR PROFESSIONAL TALENTPosition Accomplished.TM


“ If you pull off quality-of-hire, you deserve a seat at the strategic table; you deserve a seat at the head of the table, right next to the CEO!” — Lou Adler,

Author of Hire With Your Head

Quality-of-hire has fi nally arrived.

For years, quality-of-hire enthusiasts have been a relatively small, yet extremely infl uential group in the recruitment community.

Yet, the majority of U.S. corporations have shied away from quality-of-hire metrics and techniques. Diffi culties like measuring performance over long periods of time, tying the resulting analysis back to recruitment processes or sources, and collaborating across organizational boundaries have created implementation obstacles for large and small companies alike.

Today, however, several factors point to the “mainstreaming” of quality-of-hire. One reason is competition. The pressure on recruiters and hiring managers to upgrade talent is increasingly intense. In the words of one executive interviewed for this white paper, “Just as a matter of survival, everyone has to ‘level-up’ their game.”

At the same time, applicant tracking and employee performance management systems have become more robust – and integrated – in time to meet this competitive need.

What’s more, fi nancial analysis has proven that even small improvements in new-hire quality deliver business benefi ts that dwarf other recruitment and HR initiatives (as well as initiatives in sales, product, marketing, technology and other high-profi le functional areas).

The bottom line: increasing quality-of-hire translates directly into competitive advantage.

Perhaps not surprisingly, many recruiters and experts interviewed believe that the competitive advantage grows even greater when at the professional ($100K+) talent level.

“If you think about the impact of talent on your company, it’s HUGE,” says quality-of-hire guru Lou Adler, author of Hire With Your Head. “This makes the recruiting department, and HR, a strategic function. If you pull off quality-of-hire, you deserve a seat at the strategic table; you deserve a seat at the head of the table, right next to the CEO!”

Measure Up: ‘Quality’ Metrics Drive Quality Hires is the second in a series of white papers that investigates the metrics most used by recruiters. Future papers in the series will continue to explore best practices that help achieve high performance. The goal of the series is to provide information from top industry professionals to recruiters to help maximize success.


ROI: THE VALUE OF QUALITY-OF-HIRE IS PROVABLE

Quality-of-hire has been held back by the perception that it is subjective, imprecise or otherwise too hard to quantify. Recently, this has begun to change.

Ed Taylor, CEO and founder of The Collective Group, a professional services fi rm that relies on quality-of-hire techniques to differentiate itself, pinpoints the issues.

“Measuring quality-of-hire means spanning relatively long periods of time and organizational boundaries – even within HR there’s a bifurcation between the recruitment team and the rest of the department,” Taylor says. “Doing quality-of-hire right requires collaboration – and it demands resolve,” Taylor adds.

According to recruitment guru Adler, that resolve can only come from HR leaders who take responsibility for quality-of-hire, who communicate its value to the rest of the organization, and who partner with the fi nance department and with hiring managers to achieve it.

To this end, Adler has developed several fi nancial-impact models for recruitment and HR executives to employ that will advance their quality-of-hire endeavors.

THE ’TOP-THIRD VS. BOTTOM-THIRD’ FINANCIAL IMPACT MODEL

One of Adler’s impact models for conceptually proving and communicating the strategic value of quality-of-hire is embodied in Figure 1. In the model, “M” is defi ned as your company’s total revenue divided by your total compensation expense. In other words, M is the “revenue multiplier” that tells how many revenue dollars are produced by each dollar invested in employee compensation.

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“Doing quality-of-hire right requires extensive collaboration – and it demands resolve.

Bottom 1/3

M=2 M=3

Top Third vs. Bottom Third = 2*M

M=4

F D C B- B A

Top 1/3

Figure 1: Quality-of-Hire Financial Impact Model (Source: The Adler Group)


The letters running from left to right are grades, A through F, used to rate all employees. The Bell Curve shows the normal distribution of employee quality across the grades – with the most employees falling into the C to B range.

By improving quality ratios even modestly, the impact on revenue performance is enormous.

For example, if your company invests $10 million for new hires annually, hiring in the bottom third of quality results in revenue of $20 million for the fi rst year, while hiring in the top third generates $40 million – or double!1

“This puts the lie to focusing on reducing your recruitment expenses from, say, $2.8 million to $2.2 million. It has no long-term impact on your company,” says Adler. “On the other hand, if you can hire 10% more A’s and B’s, you will be a hero!” he exclaims.

Extensive research fi ndings support Adler’s model. For example, one study found that, depending on the role (operations, sales, management), high performers produce results in a range from 40% to 67% better than average employees.2

Adler and others warn, however, that HR and recruitment executives wishing to use this model must collaborate closely with other departments, especially fi nance, to customize the analysis for their individual companies.

THE QUALITY METRICS THAT MATTER

Several metrics are used most often (individually or in combination) as the basis for quality-of-hire measurement and analysis.

1 Using the 10-factor Talent Scorecard to Measure Quality of Hire, Webinar, The Adler Group, November 2009 (at www.adlerconcepts.com)

2 Quality of Hire: The Next Edge in Corporate Performance, Taleo Research, 2004

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“If you can hire 10% more A’s and B’s, you will be a hero!

Key QoH Measures Analytical Potential

• Hiring Manager Surveys

• New Hire Surveys

• Retention/Attrition

• Performance Evaluations

• Promotions

• Number of First-Year Hires in High-Potential Programs

Assess the quality of new hires and of recruitment and onboarding processes

Differentiate new-hire candidate sources

Determine contribution to the company made by the recruitment function/individual recruiters

Figure 2: Quality-of-Hire Metrics


Carter Einhorn, Director of Recruitment for the City of Edmonton, Canada, relies on a hiring manager survey for Edmonton’s quality scorecard. The survey asks hiring managers to assess new employees based on factors such as their motivation to do the work, their growth potential, the fi t of their skills to the job and their personality fi t to the “corporate culture.”

The scorecard also probes for technical skills and job knowledge; communications ability; strategic thinking and planning; guiding and managing change; managing staff; and managing operations. A fi ve-point rating scale is used.

Although he sometimes uses the scorecard during the recruitment process to target quality improvement in problem areas, Einhorn typically surveys hiring managers after a new hire has worked 60 days.

“We thought 60 days was a great point in time; it gives you enough time to really assess somebody and truly understand whether it was a quality hire or not,” says Einhorn. “And because our new-hire probations are generally three-to-six months, if there’s a ‘needs improvement’ we can address that right away.”

Thus Einhorn’s survey-based scorecard does double duty – as a quality-of-hire metric and an early-warning system for potential problem hires.

DEEP DIVES INTO THE RETENTION/ATTRITION DATA POOL

Peter V. DeBellis, a former corporate human resources executive now independently consulting in Washington, D.C., is a fan of retention and attrition data as a basis to measure quality-of-hire. He typically uses three time frames: hires that last less than a year, hires that last two to four years and hires who work for fi ve years or more.

“As long as you are bucketing the results this way, you can get good input to help you distinguish between the typical quality-of-hire of your different recruiting teams, or tie it back to your candidate sources,” DeBellis explains.

DeBellis favors looking at this data “in the context of your overall industry.” He says, “If the people you hire are leaving more rapidly than the norm for your industry, there’s a strong possibility you are not hiring the right people.”

Such conclusions can help you decide what actions to take in response, DeBellis notes. “You may have employee engagement issues; you may have performance management issues – or maybe it just takes a certain kind of person to hang in there and deal with your corporate culture,” he says. “The attrition data can tell you there’s something you may have to do differently to improve hiring quality.”

““Sixty days [is] a great point in time; it gives you enough time to really assess somebody and truly understand whether it was a quality hire or not.

““The attrition data can tell you there’s something you have to do differently to improve hire quality.


PERFORMANCE EVALUATIONS: ANOTHER PATH TO QUALITY

Analysis of performance evaluations, promotions and high-potential programs can help hiring managers and recruiters identify hires who have the “secret sauce,” experts agree.

“Data from your performance management system tells recruiters where the people they’ve hired are scoring, and performing, compared to norms and objectives,” DeBellis says.

The goal of both attrition and performance evaluation data is to differentiate between recruiters who are bringing in the top-quality candidates and those who aren’t. Once you clearly identify recruiters who are consistently bringing in high-quality hires, the opportunity is in discovering their secrets – and then spreading the word to iteratively improve hiring quality.

MAKING HIGH-QUALITY HIRES: IT’S NO SECRET

The quality-of-hire experts interviewed for this report share several “secrets” for achieving extremely high quality-of-hire.

The biggest of them all may be collaboration. At professional services fi rm The Collective Group, teams of six to ten members make all hiring decisions. All decisions must be unanimous, which means each member has veto power.

“When you get a room full of people debating the merits of four or fi ve candidates, arguing for the ones they think are best, trying to convince each other – it gets intense,” Collective Group’s Taylor describes. “But here’s the cool part. When you give people not just the responsibility but also the authority to actually make the hiring decision, then the success of those decisions refl ect on them more than you. They instantly become responsible for that person’s success.”

The personal interdependencies thus created are a potent source of Collective’s success in a business, Taylor says, “Where our people have to walk into a new company and instantly be smarter than all the IT people at that company who just hired us.” Since no one person could possibly deliver on that promise, Collective’s solution is, well, a collective one.

In the City of Edmonton, recruiters collaborate closely with hiring managers to devise extraordinary tests for new-hire candidates. For example, arborist candidates – who would tend to trees and shrubs – are brought to a tree in a park and tasked to diagnose the tree and place colored ribbons at the locations recommended for pruning.

“Don’t just tell me you’ve cut 1,500 trees in the past. Show me where you would make the cut, based on where you think the tree is diseased, dying or dead,” says Einhorn. “We then take a picture of that tree, and the hiring managers evaluate the results. That’s our performance-based way of assessing who the top performing arborists are,” he says.

““Don’t tell me you’ve cut 1,500 trees in the past; go over there and show me where you would make the cut, based on where you think the tree is diseased, dying or dead.


In another example, the city had a department in need of signifi cant reorganization. “The old method is, ‘Tell me about a time when you reengineered a department,’” Einhorn says. Instead, the recruiter and hiring manager wrote a scenario describing the department, its resources and its problems. A panel of reviewers was gathered and candidates were asked “to go up to the white board and take us through their solution,” Einhorn explains. As at Collective, the panel votes on who the top performers are.

The inter-departmental collaboration Einhorn describes is all the more remarkable for the fact that all involved had to overcome cynicism and low expectations before becoming convinced that the promised benefi ts could really be achieved.

Both Taylor’s and Einhorn’s methods are examples of Adler’s Performance-Based Hiring™ approach, though Einhorn follows Adler deliberately while Taylor arrived there on his own path. The core of the approach is to “begin with clarity and consensus on what it takes to ace the fi rst performance review,” Adler says.

From that defi nition of high performance in the job, Adler’s method next determines the characteristics of the hire needed to achieve such performance. Those characteristics comprise the job’s “performance profi le,” which Adler uses in place of a job description.

Adler then uses the performance profi le to customize a 10-factor “talent scorecard” to the specifi c job/company, for use in recruitment processes (the generic version of Adler’s scorecard is included in this white paper as an appendix).

Even with only a few months of “results” in, “Our quality-of-hire has defi nitely gone up,” Einhorn says. “The hiring managers clearly see how this process, and this new method of hiring, have increased the quality of people we are now hiring in the city. We are getting great, great feedback from the majority of our hiring managers,” he enthuses.

CONCLUSION

There are many proven metrics for measuring quality-of-hire, and just as many different methodologies for achieving high-quality hires. The important thing is to choose an approach that fi ts your company and situation, and get started. Jumping into quality-of-hire with both feet now will place HR and recruitment executives among the leaders in the fi eld and earn them that ‘ticket to the strategy table.’ It is, however, a fast-moving target; slower-moving traffi c will get rapidly passed by.

Note: Please see the Key Takeaways on the following page for actionable insights gleaned from this white paper.

““The hiring managers clearly see how this process, and this new method of hiring, have increased the quality of people we are now hiring in the city.


KEY TAKEAWAYS

1. Quality-of-hire really can be measured – pick an approach and get started

2. Collaborate! With fi nance to develop quality-of-hire investment models, with talent management to agree on and integrate metrics measurement, and with hiring managers to invent brilliant hiring tactics

3. Lead! HR/recruitment executives must take responsibility for overall quality-of-hire, despite distributed new-hire decision-making. Who else will?

4. Financial models make clear that top-third quality hires have double the positive fi nancial impact on the company of bottom-third hires

5. Judge new-hire candidates based on what it takes to ace the fi rst performance review – in other words, what they can do, not what they have done

6. Use hiring manager surveys to evaluate new hire quality at the 60-day mark

7. Retention/attrition and performance measurement data can reveal quality differences among hires and recruitment teams

8. Collaborative techniques can be extremely successful at increasing hire quality – but require extreme commitment

9. Successfully raising quality-of-hire can make HR/recruitment executives heroes within their companies – and earn them a seat at the corporate strategy table

About TheLadders

TheLadders is the leading recruitment solution for professional talent. With its exclusive community of over 3.6 million pre-screened $100K+ talent and easy-to-use tools and services to quickly surface qualifi ed, responsive candidates, TheLadders helps you fi nd the right fi t fast to fuel your company’s competitive advantage.


APPENDIX: LOU ADLER’S 10-FACTOR QUALITY-OF-HIRE TALENT SCORECARD

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MEASURE UP: ‘Quality’ Metrics Drive Quality Hires