Metrics: Transforming the Recruiting Process
What gets measured gets managed -- and recruiting is no exception.
By Bertrand Dussert
In a highly competitive recruiting environment, finding and retaining top talent is only getting harder. Today's workforce now has information at their fingertips that makes it easier than ever before to quickly locate new jobs and leave old positions. Thanks in part to these new technologies, employees expect the hiring process to be quick and efficient -- which, unfortunately, is still not the case in many large legacy companies.
To ensure their organizations are keeping pace with employee demand and allocating financial resources appropriately, many HR and recruiting leaders are implementing metrics to help them make sense of each hire in terms of dollars and cents.
One of the more popular metrics from an HR perspective is cost-per-hire. According to the Society for Human Resource Management's most recent Human Capital Benchmarking Report, the average cost-per-hire is $4,129, while the average time it takes to fill a given position is 42 days.
But how can you calculate the exact cost for your company? Take a look at your external and internal costs and divide that number by the total number of hires your company plans to make. This final figure should also reflect money invested in agency fees as well as any job-board advertisements. If looking at cost-per-hire as a competitive benchmark, it's important to remember other variables such as role complexity, location, number of high-volume roles and demand predictability that may impact your bottom line.
This metric is most useful as a trending indicator over time, or in an environment in which many or most variables can be controlled. A potentially more helpful external benchmark is the recruitment-cost ratio, which looks at total recruitment costs relative to total cash compensation (a proxy for role level and complexity). This metric allows recruitment functions in different industries to compare the relative cost of hiring a certain amount of total cash compensation (excluding stock buyouts). By measuring recruitment costs divided by total cash compensation instead of number of roles, it controls for the fact that higher-paid roles are usually more expensive to fill. So, whether you're filling four jobs at $50,000 each per year, or one job at $200,000 per year, the expected recruitment costs should be similar (all other things being equal). This allows for better benchmarking among companies with a different mix of workers and compensation per employee.
Quality of Hire
Unlike cost-per-hire, quality of hire is a bit harder to calculate. However, this metric is a critical piece of the recruiting puzzle, helping HR departments estimate the value each new hire brings to an organization. To start calculating this metric HR departments first need to establish the value of an average employee -- this can be measured in large part by what the employee accomplishes on a day-to-day basis. While this is difficult to accomplish for some roles that are harder to quantify, the explosion of data and measurable activity in corporations has increased the number of roles for which this might work. Measurement can focus on revenue ramp and time-to-quota attainment in sales, training milestones for technically complicated roles, average call-handle time and net promoter scores for call center workers and code productivity and defect-rate measurements in development jobs.
One example of an index looks at average performance ratings, the percentage of hires flagged as high potential, average time to first promotion (if in first two years), and percentage of turnover -- all measured during the first two years. By equally weighing these, you can get a sense of quality of hire by source or recruitment team.
Quality of hire, though more complex, is essential because it ensures the company is investing in the right people to yield a higher return on its recruiting investment. The higher the quality of new hires and the better their fit rate, the higher productivity and work satisfaction will be, eventually leading to higher retention rates.
Hiring Manager Satisfaction
As the name suggests, hiring-manager satisfaction metrics indicate how happy managers are with their new hires. This metric is less about the numbers and more about eliciting specific feedback on the new worker's performance and ability to perform tasks efficiently and effectively. This feedback is typically captured during key intervals, such as shortly after the hire's first week, first month and first 90 days. Many organizations use traditional customer satisfaction scores to measure this, and some companies have experimented with other approaches like the Net Promoter Score, or even soliciting direct feedback on front line employees from customers. For example, one major airline asks customers the following one-question survey at the end of phone conversations with their representatives: "On a scale of one to five, with five being very likely, how likely would you be to hire the person you just spoke to if you owned a customer-service business?
With modern cloud-based core HR and talent management systems, HR departments can now capture and provide visibility into talent information and provide that data to managers, further empowering the workforce. For example, employees can benefit from machine-learning-enabled career path recommendations, and managers can leverage predictive analytics to anticipate talent issues (such as projected performance issues). These modern HR systems are designed to align with leading HR practices and provide managers with more intuitive embedded-data insights to help them make better decision. This usually results in improved manager satisfaction rates and leads to better management techniques and, ultimately, higher employee engagement and increased retention.
What's Your "Stick Rate"?
Stick rate, or new-hire retention rate, is a metric HR departments would sometimes rather forget. But stick rate is a necessary component for a balanced view into the quality of the hire. Every organization will have its own definition of failure, but a common one is an employee who leaves the company within the first year of employment under any circumstances.
What's important here is looking at the year-over-year comparison -- is failure rate dropping or climbing? If new-hire failure rates rise or quality of hire suffers, those costs often impact the business through underperformance, costs of vacancies in revenue roles and, often, a new set of direct-hire costs to replace a hire who didn't work out. While some "failure" is to be expected in today's workplace, talent leaders should be wary if that failure rate is too high. A high failure rate can be a reflection of a problematic culture, leadership challenges or recruitment messaging that lacks transparency. For example, if your recruitment branding focuses too much on the benefits and perks of working at your company and not enough on an accurate description of its culture, you'll likely have a higher new-hire failure rate than organizations that do place a priority on transparent messaging. Realistic job previews can help with some roles, as can a drive for authenticity and candor in the interview process. This includes explaining clearly what it takes to be successful in both the role and the business.
Why Do These Numbers Matter?
Although most of the above is highly contextual, these metrics should help HR departments better manage resources and allocate more time and money to the recruiting function. Best in class tools should capture all the data required to measure these metrics, and organizations with unified technology platforms across the talent management lifecycle tend to have an easier time measuring quality of hire. This technology is also helpful in providing recruitment leadership and recruiters with capabilities that immediately help to improve results. Examples include social recruitment platform that drive up employee engagement in recruitment, better pre-screening to reduce the risk of new hire failure, mobile enabled tools to minimize recruitment delays, and many more.
With all of this knowledge HR departments can make focused adjustments to make better hires and breed a happier workplace for all employees with the empirical data to back them up.
Bertrand Dussert is vice president of HCM transformation and thought leadership at Oracle Corp.