Explaining the value of measuring the quality of hire in recruiting

1. What Does Recruiting Really
Know About Quality of Hire
© Dr John Sullivan
www.drjohnsullivan.com
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2. 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

3. Introduction to quality of hire
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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. 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”

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. 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

8. Part II
What is and what is not quality
of hire?
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9. 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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10. What is quality of hire
Quality 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)
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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. Part III
How it helps the business case
for funding
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13. 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)
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14. 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 Alan Eustace
entire incoming class of Senior Vice President,
Engineering and
engineering graduates Research
than one exceptional
technologist.”
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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)
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16. Benefits of measuring the quality of your hires
Business 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)
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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
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18. Part IV
How it can help you to improve
the sources that you use
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19. QoH can tell you which sources
are most effective
Aricent Corporation 19

20. 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 20

21. 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
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22. Part V
Different components of
performance to consider including
in your metric
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23. 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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24. 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 > 24

25. 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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26. 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
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27. QoH performance factor commonality
80%
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
Scrores
Source: 2009 DJS ERP Design & Program Performance Benchmark Study; n=241

28. Part VI
Typical QoH errors to avoid
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29. Errors to avoid
Common QoH process errors:
1.Assuming that measuring QoH is either too
difficult or unnecessary
2.Confusing quality of candidate with on-the-job
performance of new hires
3.Not involving the CFO early on in the
development of the metric
4.Failing to use pre-existing measures of employee
performance and output >
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30. 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 > 30

31. 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
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32. Did I make you think?
Any additional questions?
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