Quality of Hire. Hiring the right candidates as a business strategy

Any HR manager knows that the hiring process takes a lot of time. It’s time-consuming to read through so many resumes and cover letters, check references, and coordinate interviews. And once the candidate is hired, yet more time is spent on orientations and training the new person on the company, its policies, management, and his or her role.

After spending so much time hiring someone, you’d expect all of your effort to pay off and that the candidate would prove to be a profitable addition to the company. But that’s not always the case, and what’s worse, most companies don’t even know when they are the victims of poor hiring, because the outcome of a given hiring decision can be so hard to quantify. Establishing quality-of-hire metrics can help provide the data companies need to hire smarter and find the candidates who will boost the company’s profile and earnings.

Quality of hire can be determined by combining several relevant metrics. Different companies and industries measure the quality of hire differently—there isn’t one specific formula that works for all. The important thing is to take the metrics for what they are: pieces of a puzzle that, when put together, can help your company hire the right people in the right positions to improve operations, increase customer satisfaction, and boost profits.

Some quality of hire metrics measure the following:

• Turnover and retention. HR should be able to easily come up with a figure that shows how long new employees are staying with the company and the rate at which employees are leaving. High turnover may mean something is wrong with the hiring process, and this can end up costing the company a lot if it continues to hire candidates that are ultimately unsuitable.
• Productivity. There are several ways to measure this, depending on the employee’s role. If it’s a sales job, productivity can be measured by dollars in sales or the number of newly acquired clients. If it’s a management position, look at the team’s performance as a reflection of his or her productivity.
• Performance reviews. These become even more important when you begin to measure the quality of hire. They can be used to gauge the employee’s productivity, effectiveness, and fit. Even though “fit” is a rather loose and subjective measure, it’s still an important aspect. For instance, if a manager notes that an employee is not a team player, and doesn’t communicate effectively or get along well with others, it may be a sign that he or she is not a good fit for the company. This can translate into less productivity, or the employee might leave, which would end up costing the company.
• Manager satisfaction. As with performance reviews, this is another way to measure whether an employee is performing his or her duties satisfactorily. A manager or supervisor has insight into his or her employees’ performance, so creating a streamlined way for managers to share that insight is useful when it comes to measuring the quality of hire of team members.
• Cost per hire. In financial terms, cost per hire is a monetary measure of the time and effort taken to staff an open position. It’s an important metric because it sets a benchmark for the effectiveness of the staffing process.
• Time spent filling the position. Looking simply at the time spent, without assigning a monetary value as in cost per hire, is also a good metric for determining the quality of hire.

It’s important to remember that these metrics alone can’t measure quality of hire, and that they’re not the only ways you can assess an employee’s value. Whatever metrics you use, take care to apply them in a way that makes sense for your company’s business model.

This is where putting some effort into figuring out how to measure quality of hire in a way that makes sense for your company becomes crucially important. The measuring needs to take place after the candidate has been hired, to determine whether and how much the new employee has affected the company’s productivity and profit.

When you hire the wrong candidate, your company stands to lose money. This could be due to the cost of the hiring process, or, even worse, it could be that a new employee is making mistakes that are costing money, like shipping the wrong orders or mishandling and losing clients. On the other hand, the right candidate can make the company money—let’s say by increasing revenue through sales or acquiring new clients.

Since measuring quality of hire is directly related to the company’s financial information, any effort to measure it must be done in conjunction with the company’s CFO and the finance department. That’s the starting point. From there, the HR and finance departments can determine together which metrics should be used so that you can begin to gather the data that will make the case for better hiring practices to improve the company’s bottom line.