There's no better feeling than biting into a fresh, ripe apple. There's a crunch, a surge of taste and, if it's especially ripe, you might even get a little extra juice dribbling down your chin!
By contrast, it's almost heartbreaking when you pick the wrong apple. What appears to be a shiny, delicious treat is rotten to the core. The taste sticks in your mouth, maybe even puts you off apples for a while!
For the creative among you, it might not be too much of a stretch to compare picking the wrong piece of fruit with making a bad hire...
Not only do poor hiring decisions have a financial impact, (each mistake can cost your organisation as much as $50,000), a bad hire can quite literally act like a rotten apple inside your organisation, destroying your culture from the inside.
It's not like these errors are rare either - many studies estimate that around 50% of all new hires prove to be duds in the first 18 months.
[tweetery]Be careful: 50% of all new hires are judged to be unsuccessful after 18 months[tweetery-end]
It should come as no surprise then that 39% of talent leaders agree that quality of hire is the single most valuable metric to evaluate their teams performance. In fact, according to LinkedIn's Global Recruiting Trends Report (2016), quality of hire ranks as the most valuable performance KPI.
It's a big deal.
Despite the importance that talent leaders are placing on the metric, there's currently no industry standard measure for quality of hire.
In fact, only 33% of companies feel like they're using strong tactics to measure quality of hire, and only 5% believe their tactics are "best in class". We might agree that it's the golden metric, but it looks like we haven't found a good way to track it to date...
With all of this in mind, here are the 5 most effective ways to measure quality of hire. We recommend blending a few of these tactics together to get accurate data.
1. Using performance reviews
50% of companies currently rely on performance reviews to measure quality of hire. It's the most frequently used method to track hiring's golden metric.
It makes sense: if a new hire is performing well, it stands to reason that they're high quality and that hiring them was a good idea.
Sadly it's not so simple: performance reviews are often pretty subjective, so it can be misleading to standardize the results. Put simply, some people are hard to please, while other leaders just hand out top marks across the board.
This potential variance in qualitative feedback makes it extremely difficult to develop a consistent measure of quality of hire.
If you're looking for ways to counter this, here are a few performance related data points that you can use to make your analysis more accurate.
i) Ranking score
Managers are asked to rank order new hires to see how they stack up against each other. This metric is useful to show how fast new employees ramp up, as well as indicating which sources provide the most high quality candidates.
ii) Average bonus (% of an employee's pay).
Looking at the compensation awarded to employees is a clear indicator of how effective they are at their job. The higher the compensation, the better the hire.
iii) Error rate
While everyone makes mistakes, the assumption should be that quality hires makes less of them. Therefore, by tracking how often a new hires projects require rework or have mistakes, we can ascertain their level of quality.
**2. Tracking retention **
Retention is another widely used metric to measure quality of hire - 49% of talent leaders use it when trying to gauge new hire quality.
Again, the rational for using retention to measure quality of hire is simple: the longer an employee stays with a company the more value they can add to the business.
There's an obvious weakness with relying on retention metrics too much though, which Amplify Talent founder Lars Schmidt points out:
“Retention is harder to measure because there’s a lot of different factors outside the individual’s quality that can impact how long they might stay. You can have an amazing hire and a horrible manager. That great hire will be poached by another organization and that’s not a reflection on the recruiter that brought that person in.”
In other words, the new hire could be great, but if you don't follow through on all of the promises that you made during the recruiting process they'll be heading out the door.
If you want to use retention to track quality of hire, here are the best measures to use:
- Turnover rates for mission critical roles
- Turnover rates amongst top performers (top 15%)
- Turnover rates amongst all new hires
*With all of these measures, it's important to distinguish between voluntary / involuntary turnover.
3. Measuring hiring manager satisfaction
Ranked as the 3rd most important hiring metric by the Global Recruiting Trends Report, hiring manager satisfaction is used by 43% of organisations to measure quality of hire.
The most effective way to gather hiring manager satisfaction data is through surveys. A survey is sent for each new hire, therefore a manager with five new hires on his team would complete five surveys. Your questions should cover:
- Satisfaction with competency of new hire
- Satisfaction with performance of new hire
Hiring manager satisfaction is a useful indicator of quality of hire but it again suffers from subjectivity. If it's taken in insolation as a sole measurement of quality of hire then it could be misleading.
4. ELV - a new way to measure Quality of Hire?
ELV (or Employee-Lifetime-Value) represents the total net value over time that an employee brings your organisation. It's a great way to track "true" quality of hire.
Just as many companies measure Customer Lifetime Value (CLV) to determine the productivity of sales efforts, by calculating Employee Lifetime Value (ELV, employers can link recruiting to performance metrics, thereby driving strategies to improve talent acquisition results.
So what does an ELV actually look like?
Every person's ELV spans across their entire lifecycle as an employee, starting on Day 1 and ending when they leave the company (image from Greenhouse below to illustrate the average employee lifecycle).
Models like this can be used to track the contributions that new hires make to your business over time. They help you avoid basing any idea of quality of hire on subjective feedback...
ELV is clearly not something that you can gauge immediately. You'll require some lead time to establish the average ELV for your business before you can make any judgements on new hires.
Once this benchmark is in place though, it's a useful way to combine variables like performance and productivity to judge quality of hire over time. Knowing your ELV also enables the executive team to visualize the value of acquiring a top performer and their impact on the company’s revenue stream.
Once you know your ELV you can make efforts towards increasing it. Shortening ramp time and increasing productivity and longevity all have a profound effect on the contributions that a new hire can make to your business.
5. Tracking "pre-hire" metrics
An effective measure of quality of hire cannot be restricted to post hire metrics. To get the full picture, companies need to include pre-hire metrics.
This is something that talent leader and author Lou Adler advocates for strongly, arguing that focusing on pre-hire metrics helps employers focus on specific sources of hiring problems stemming from recruitment before they impact quality of hire.
“Even better, it allows recruiting leaders to predict quality of hire for any recruiting campaign 30-60 days before the people are actually hired” - Lou Adler
In other words, you can't just be reactive when it comes to tackling quality of hires - you need to take action to make sure that the people that you hire in the future are likely to be great employees.
Here are a few methods to measure this...
Here are a ways to get a rough idea of candidate quality before you hire them. Most are easy for your team to answer.
- Candidates receive counter offers (if they're good this would be logical)
- They have competing offers from top companies
- Your top performers know them / know who they are
- They were hard to convince (the best tend to be hard to sell)
- They're not on the market long (the best go fast, sometimes in as little as 10 days)
- They've won awards in the past
- Executive search professionals know them (if they're good, they should be in search databases)
- They fit your candidate persona profile
Here are data points that you can use to determine a candidate's likelihood of being a quality employee before they're hired.
i) Scores on assessments and aptitude tests
These tests are designed to measure the applicants mastery level of specific skills critical to success on the job. It therefore stands to reason that test success correlates with quality of hire.
ii) Passive candidate conversion rates
Passive candidates are not only seen as higher quality, but as harder to find and engage. This metric shows a business how effective their team is at converting these high quality candidates, and how many they're hiring over time.
iii) Referral rates by recruiter
Lou Adler boils this down: “The best candidates are typically referred and, generally speaking, the recruiters who make the most high-quality hires obtain the most high-quality referrals.” If this is true, a high referral rate equals high quality candidates.
iv) Time to hire
The longer your time to hire, the harder it is the hire the best candidates (the best are off the market within 10 days). A faster time to hire also positively effects your company's ability to complete projects and work productively - you have more resources available.
Building a "true" formula for Quality of Hire
If you're looking for a single number to measure quality of hire, we suggest trying the following formula:
[su_note]Quality of Hire (%) = (Job Performance + Ramp-up Time + Engagement + Cultural Fit)/N[/su_note]
(All should be scored out of 100, N = number of variables used)
The benefit of this formula is that it combines new hire performance and productivity (ramp-up time) with an employee's engagement and cultural "fit". It's a more complete view. (As an aside, if you're looking to measure employee engagement, we recommend Culture Amp or Officevibe).
These new scores can be combined with your turnover rate so you can calculate the overall effectiveness of your hiring process.
[su_note]Overall Quality of Hire (%) = [Avg. Quality of Hire score + (100 – Turnover Rate)]/2[/su_note]
(Turnover rate - number of hired employees who were fired / quit, divided by total number hired).
If you're interested in using this formula to measure quality of hire, we recommend that you think long and hard about the input variables that you'd like to use to measure performance, and tweak it over time.
It's unlikely to be perfect off the bat, but it should give you a solid starting point.
Why measure quality of hire in the first place?
If you've been racking your brains while reading this, wondering if it's worth implementing these measures in your company then this is for you:
Measuring quality of hire is crucial to business success as it highlights to everyone that recruiting is not a one-time task (finding a good candidate), but is a core competency that constantly brings the best people in and measures their contributions.
[tweetery]Recruiting is not a one-time task. It's a core business competency[tweetery-end]
If you understand the qualities of your top employees you adjust recruitment strategies accordingly you can ensure that you hire more of them!
For example, by knowing the qualities that make your best marketeers successful, the recruiting team can adjust its interview questions to ensure they assess candidates for the right attributes. Moreover, if you combine quality of hire with source quality data, you can invest in the sourcing efforts that best contribute to long-term company objectives.
In short, it isn't just about grading recent hires, it's about futureproofing your organization by developing a framework to consistently hire awesome talent.
If you enjoyed this article then take a look at the Beamery Academy. It’s stuffed full of actionable ebooks, courses and whitepapers that will help you take your team make talent their competitive advantage.