July 21, 2017 | Written by: Jason Berkowitz
Categorized: Talent Acquisition
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Everybody has worked with “that guy,” the person who contributes as little as possible on the job but never gets demoted or fired. Employees like him are a drag on their colleagues, demoralizing top performers in particular.
One reason that low performers get hired and stick around so long is because many companies have no clear measurement of what truly constitutes a quality hire and how that hire impacts the bottom line. In fact, many organizations settle for quality-of-hire measurements that have little to do with the quality of their hires.
The companies that do attempt to truly measure quality of hire do so because they want to know if the recruitment process is delivering what they want.
It’s time to shift from talking about quality of hire and instead discuss impact of hire. A change in focus will prompt companies to start finding, measuring, analyzing and applying objective, relevant data to improve both the bottom line and the talent acquisition process.
The cost-impact metric
It is possible to measure the impact of employees over the lifetime of their employment at the organization and use that measure to objectively compare various employees and determine which ones were better quality hires.
We propose this cost-impact formula to measure impact of hire: Measure the financial impact of an individual each year and divide it by their compensation.
Let’s say an individual delivering $1 million of value for $100,000 of salary would have a 10X financial impact (delivering 10 times the value of the compensation), and an individual delivering $500,000 of value for a $40,000 salary would have a 12.5X financial impact.
By adding in cost-per-hire to this measurement, you can start identifying if it makes sense to increase the budget for talent acquisition if you are confident it will result in a higher ROI.
With a bit of careful measurement, you might determine that an additional $100,000 spent on new talent acquisition programs might increase the ROI of new hires from 8X to 9X, yielding millions of dollars of additional value for the business.
If you transition to calculating the cost-impact metric, remember that data required to accurately assess a hire’s impact is gathered over time, not within the first three to six months. With this in mind, one IBM Talent Acquisition Optimization client analyzes the performance data of each of its employees once every two years.
For a better understanding of why the current “quality of hire” metric is flawed, download our 2017 State of the Industry paper today.