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What Does Recruiting Really
Know About Quality of Hire



      ©   Dr John Sullivan

     www.drjohnsullivan.com

                              1
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




                                  3
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
Part II



What is and what is not quality
           of hire?




                                  8
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”)
                                                                       9
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)
                                                                     10
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
Part III



How it helps the business case
         for funding




                                 12
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)
                                                                         13
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.”
                                                       14
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)
                                                                   15
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)

                                                    16
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
                                                  17
Part IV



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




                                 18
QoH can tell you which sources
     are most effective




                    Aricent Corporation   19
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
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
                                                   21
Part V


     Different components of
performance to consider including
          in your metric




                                    22
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)
                                                                        23
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
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


                                                   25
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

                                                     26
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
Part VI



Typical QoH errors to avoid




                              28
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               >


                                                 29
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
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



                                                    31
Did I make you think?



Any additional questions?




                            32

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Quality of hire metrics and why you must measure it

  • 1. What Does Recruiting Really Know About Quality of Hire © Dr John Sullivan www.drjohnsullivan.com 1
  • 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
  • 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? 8
  • 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”) 9
  • 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) 10
  • 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 12
  • 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) 13
  • 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.” 14
  • 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) 15
  • 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) 16
  • 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 17
  • 18. Part IV How it can help you to improve the sources that you use 18
  • 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 21
  • 22. Part V Different components of performance to consider including in your metric 22
  • 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) 23
  • 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 25
  • 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 26
  • 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 28
  • 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 > 29
  • 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 31
  • 32. Did I make you think? Any additional questions? 32