There’s nothing like the feeling of 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 and delicious treat is rotten to the core. The taste sticks in your mouth, and maybe even puts you off apples for a while!
For the creative folks reading this, 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 (a bad hire can cost your organization as much as $240,000), a major hiring mistake can act like a rotten apple inside your organization — destroying your culture from the inside.
It should come as no surprise that LinkedIn’s Future of Recruiting Report refers to quality of hire as the “holy grail” metric to evaluate their team’s performance. It’s a big deal.
Despite the importance that talent leaders place on the metric, there’s currently no industry standard measure for quality of hire.
In fact, the same LinkedIn report states that only 48% of companies currently use this metric, yet 88% said it would be “very useful” if they could successfully capture it. Talent acquisition professionals might agree that it’s the golden metric, but it looks like many companies haven’t found a good way to track it...
With all of this in mind, here are five of the most effective ways to measure quality of hire. We recommend blending a few of these tactics together to get the most accurate picture.
1. Using performance reviews
Many companies rely on performance reviews as a way to measure quality of hire. It’s the most frequently used method to track hiring’s so-called golden metric.
It makes sense: if a new hire is performing well, it stands to reason that they’re of 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.
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 highest quality candidates.
Average bonus (% of an employee’s pay).
Looking at the performance-based bonus compensation awarded to employees is a clear indicator of how effective they are at their job. The higher the compensation, (usually) the better the hire.
While everyone makes mistakes, the assumption should be that quality hires make 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. Again, the rationale 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
And with all of these measures, it’s important to distinguish between voluntary and involuntary turnover.
3. Measuring hiring manager satisfaction
Ranked as another one of the most important hiring metrics by the Future of Recruiting Report, hiring manager satisfaction is used by 41% of organizations 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 their team would complete five surveys. Your questions should cover:
- Satisfaction with competency of the new hire
- Satisfaction with performance of the new hire
Hiring manager satisfaction is a useful indicator of quality of hire but it again suffers from subjectivity. If it’s taken in isolation as a sole measurement of quality of hire, then it could potentially be misleading. This metric is used best in combination with others on this list for the most accurate results.
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 to your organization. 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 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 one and ending when they leave the company.
ELV is clearly not something that you can gauge immediately. It will 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 in their assessment as well.
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 the 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.
There are a few methods to measure this...
Here are some things to consider that can help you get at least a rough idea of candidate quality before you present a job offer.
- They have competing offers from top companies
- Your top performers know them/know who they are
- They were hard to convince (the best candidates tend to be hard to sell)
- They’re not on the market long (the best go fast, sometimes in as little as 10 days on the job market)
- They’ve won awards in the past
- Executive search professionals know of them (if they’re really good, they should be in search databases)
- They fit your candidate persona profile
Here are some data points that you can use to determine a candidate’s likelihood of being a quality employee before they’re hired.
Scores on assessments and aptitude tests
These tests are designed to measure the applicants mastery level of specific skills that are critical to success on the job. It therefore stands to reason that high test scores correlate positively with quality of hire.
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.
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 should equal high-quality candidates.
Time to hire
The longer your time to hire, the harder it is to hire the best candidates. A faster time to hire also positively affects your company’s ability to complete projects and work productively, since you have more talent 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:
Quality of Hire (%) = (Job Performance + Ramp-up Time + Engagement + Cultural Fit)/N
(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. These new scores can be combined with your turnover rate so you can calculate the overall effectiveness of your hiring process.
Overall Quality of Hire (%) = [Avg. Quality of Hire score + (100 – Turnover Rate)]/2
(Turnover rate = the number of hired employees who were fired or quit, divided by the 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 fit your organization’s needs.
It’s unlikely to be perfect straight away, but it should give you a solid starting point.
Why measure quality of hire in the first place?
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.
If you understand the qualities of your top employees, you can adjust your recruitment strategies accordingly to ensure that you hire more of them.
For example, by knowing the qualities that make your best marketers 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.
Beamery’s Talent Lifecycle Management solution uses AI to help talent professionals source and recruit high-quality candidates, and then helps identify which sources typically bring the best quality employees into your organization. But hiring top talent is only half the battle — in today’s market, it’s crucial that you retain your best employees. See how Beamery can help you keep your top talent and prevent losing them to competing companies.