I was talking with a very smart guy last week, who told me that weather prediction has gotten 50% better in the last 10 years. This involved a lot of modeling and AI in combination with hundreds of data scientists looking at every variable that affects the weather within 2-3 degrees in your zip code at any time of the day within 30-60 minutes. This is pretty cool and pretty exciting stuff, yet predicting on-the-job performance is still done with pseudo-science, bias, gut feelings and thumbs.
What the heck is happening? I’ve been thinking about hiring when I first become a hiring manager 45 years ago and 1,500 hires later (as a recruiter). Mostly I’ve been thinking about why hiring processes are still as outdated as they were when I became a recruiter (in 1978). Here’s what I find puzzling:
- Why do recruiters need to review 150 resumes to make one decent hire, but only 3-4 referred candidates to make one great hire?
- Why do we hire people we know based on their past performance and potential, but we hire strangers based on their past experience?
- Why do hiring managers want to hire candidates who can hit the ground running, but the best people who can hit the ground running want to run on different tracks?
- People who see the job as a career move don’t need as big a salary increase compared to people who are accepting ill-defined lateral transfers. So, why do we negotiate the salary, the location and job title as the condition for having a conversation with someone?
- While we all want to hire more diverse people, why do we expect them to have the same skills and experiences and look and sound like everyone we’ve already hired
- Why is it we still can’t measure quality of hire?
- Why do people in the top half have less or different experience than those in the bottom half? That’s how they got into the top half.
- Why do we design the candidate experience largely for candidates we’re not going to hire, rather than for the candidates we do want to hire?
- Why do recruiters and tech vendors get excited about doing the wrong things more efficiently?
- Why are we still fighting the war for talent?
Since I've had a chance to track the performance of hundreds of people who were and weren't hired for many years after the hire, one problem is that there are just too many cooks and too many recipes being used on how to hire people. Based on this tracking, I've summarized the best and worst predictors of on-the-job performance in this table. (Click here for a popup of this table with the explanations.)
While the list is near perfect, getting everyone to use an evidence-based process to collect these best predictors and avoid the worst ones turns out to be the biggest challenge. (I'll be discussing this concept at my next webcast.)
Predicting the weather requires the same insight and technical ability as rocket science. Predicting quality of hire requires a year or two of statistics, a good understanding of human nature, recognizing the difference between steps and systems, and an agreement by everyone who is involved in making the yes/no decision that evidence trumps bias, emotions, thumbs and gut feelings.
In the last few years, we’ve run a survey asking how recently hired people found their jobs and how active or passive they were when they heard about the job. With the help of a curious Harvard undergrad, we recently looked back through the results to see if we could determine what are the best predictors of quality of hire.
Based on our data, we were able to come up with a list of key predictors of both job success and failure:
A new survey we are running this year will enable us to figure out how these factors need to be weighed when making the yes/no hiring decision along with why people accept jobs and why they thrive in some jobs and not others. (send this survey link to everyone you know who has changed jobs in the past few years).
For example, offering someone with heavy skills and experience might be satisfying in the short run but it could also result in excluding some very talented people who are looking for stretch assignments. In fact, these candidates might be stronger in both the short and long run. (Don’t hesitate to reach out to me if you’d like to learn more about how this information can be used to make better long-term hiring decisions.)
Why source of hire (and networking in particular) is a top predictor of quality of hire
As we were putting the above chart together, the data and my years of recruiting experience showed that one of these predictors was particularly important for recruiters. And that’s the source of hire. It turns out that when we tracked the source of hire across passive and active candidates, we concluded that those who found their jobs via networking were far more satisfied with their jobs today and were more likely to still be in the same job one year later.
To illustrate what I am talking about, here is the survey data:
The percentages at the top of the graph categorize 3100+ survey respondents by job hunting status. The percentages indicate the size of the talent market. The spread represents different job levels. The bar chart summarizes how these people actually got their jobs.
It’s expected that those people who were actively looking for a job would respond to a job posting, but even these people were also aggressively networking. In fact, about 45% of these people found a new job via networking vs. 40% via the job post route. (This is the sum of the two active job seeker charts on the left of the graph.)
Not unexpectedly, for those who are less active (Tiptoers are people who are casually looking for another job), networking trumps applying directly for a job by a factor of 3:1. For the true passive candidates, the ratio of networking to applying is a whopping 7:1.
Fish where the big fish hang out
While networking is the obvious first choice for finding the best talent, comparing the size of the active, Tiptoer and passive candidate talent market reinforces this point. Since less than 20% of people looking for professional staff or mid-management positions found their current job by applying directly to a posting, it suggests companies should not spend more than 20% of their budget doing this.
While this information was extracted from last year’s survey, it was not unexpected. The same results were found in a joint research project we conducted with LinkedIn a few years ago. This survey revealed that active candidates represent around 5-20% of the total talent market, Tiptoers about 15-20% and passive candidates about 65-75%. The ranges reflect different job levels with fewer active candidates available for high demand positions.
Given this data, it’s pretty clear that finding candidates needs to emphasize networking.
Recognize that LinkedIn is a network of 500 million people, not just a database of them
If you’re trying to hire a top person, don’t use processes designed to weed out the weak ones. Part of this is not posting jobs that are at best ill-defined lateral transfers. Instead, write compelling postings and emails that capture your ideal candidate’s intrinsic motivators. Here’s a great example for a tough job in a remote area that attracted passive candidates within hours. Note the absence of any skills.
Bottom line, you need to emphasize networking and offering compelling career growth opportunities if you want to improve quality of hire. Practically speaking, you don’t need any survey data to prove this, just ask some hiring managers how they found their best people. But it would still be nice to have the survey data to confirm what we think we know.
In a talent scarcity situation, when the demand for talent exceeds the supply, you need to use an “attract the best” sourcing and recruiting process. This is represented by the left side of the supply vs. demand curve displayed in the graphic.
Under these circumstances it’s important to recognize that the candidate initially has the upper hand. This will only change if the job being offered represents a true career move. Achieving this requires a much better job, a slower, high-touch recruiting process and a fully engaged hiring manager. While it takes more effort, when implemented properly this process won't only improve quality of hire but also reduce cost and time to fill.
In a talent surplus situation when the supply of candidates exceeds the demand – the right side of the graphic – most companies use a “weed out the weak” process. This is a highly transactional process that involves box-checking skills, filtering candidates based on location and compensation and offering ill-defined lateral transfers. The goal is reducing cost per hire and time to fill by focusing on efficiency improvements. The use of artificial intelligence is very effective in this type of process, but improving quality of hire is problematic since the criteria for extending and accepting offers is unrelated to long-term career growth.
It’s important to note that you can’t use a surplus of talent process based on weeding out the weak, when a surplus of talent doesn’t exist. In all cases when the demand for talent exceeds the supply you must use an “attract the best” process. Making this right to left shift is not easy, but essential if you want to improve quality of hire. Here’s how to get started.
Eliminate skills-infested job descriptions to increase the supply of top talent
You’ll be able to remove the lid on quality of hire and attract more high potential and diverse candidates when jobs are defined as a series of performance objectives rather than a list of skills.
For example, it’s better to say, “Design a chamber to test vehicle stress under high-speed turbulent air flow with limited direction” rather than, “Possess an advanced degree in mechanical engineering and be a self-starter.” As long as the person is competent and motivated to do this work, he/she will have the right mix of skills, experiences and competencies.
Offer 30% non-monetary increases
You’ll never have money in your compensation budget to hire the best people in a talent scarcity situation. However, by offering candidates more career growth and more satisfying work, you’ll be able to minimize the need to offer excessive salary increases.
I tell my candidates they should only accept offers that provide a minimum 30% non-monetary increase. This is the sum of a bigger job, more satisfying work, more impactful work and more rapid growth. In these situations, the compensation needs are negotiable and rarely become the deal-breaker. More important, the candidate is assured of accepting the offer for the right reasons, balancing long-term growth with short-term needs.
Don’t post your job descriptions – market them instead
Traditional job postings are ineffective in a talent scarcity situation. However, career-oriented advertising that describes some of the big challenges and tells stories about why the job is important are invaluable for getting people to engage in preliminary career discussions. It’s unlikely your ideal candidates will find these postings, that’s why they need to be pushed to pre-select prospects as part of a multi-stage marketing campaign.
Emphasize proactive sourcing, not Boolean searching
You don’t need to be a Boolean expert to find exceptional talent. Instead, I suggest first developing a short list of pre-selected prospects who have achieved some type of formal recognition for exceptional work AND who would also see your job as a likely next step in their career progression.
For example, for engineers I’d first find those with patents, some industry award and/or those who are members of an honor society. Then I’d narrow this list down to those who might see a move to a company that offered more growth and impact as a worthy career move. In addition, I would search on my connections’ connections using the same criteria and ask about the best of the people uncovered to get some great referrals.
Go slow – spend more time with fewer people
When the demand for candidates exceeds the supply, 80-90 percent of all sourcing and recruiting efforts need to be focused on the above activities. In the aggregate, this process does not take any more time since you’re spending more time with far fewer people. The payoff is an increase in quality of hire, more job satisfaction and reduced turnover.
This is a relationship intensive process that requires better jobs, fully engaged hiring managers, exceptional recruiters and sourcers and a company more interested in raising quality of hire rather than reducing cost. You only need 10-15 people who meet this criteria to make one great hire. This is a lot better than reviewing hundreds of resumes and hoping to make one decent hire.
A recent LinkedIn research report indicated that these three metrics are what recruiters believe are most important when it comes to measuring new hire success:
- The length of time new hires stay at the company
- Time to hire
- Hiring manager satisfaction
It’s not a surprise that both 1 and 3 relate to quality of hire – this metric has been on the top of every talent leader’s list for years. And, the common theme has been that quality of hire is the primary determinant of success.
However, what seems to be elusive is how to measure quality of hire before the person is hired. Companies have fewer problems measuring quality after the hire. Usually this is based on the new person’s on-the-job performance after 6-12 months. Of course, these types of historical measures are assessed too late to manage incoming candidate quality.
With the absence of a valid pre-hire quality of hire measure, companies take the safe route by over-relying on the need for direct industry experience, a very high standard for minimal education, an endless laundry list of skills and generic competencies and more sophisticated pre-hire assessment tests that the best passive candidates refuse to take. The result of this absurd approach is that it ensures the company will hire average people and have employee retention problems.
Good news is, there's a better way - one that allows you to know the quality of a hire before making the hire.
How you can predict quality of hire
The tactic im about to discuss is one used to promote people internally and hire well-known referrals from the outside. This process achieves predictable results since it’s based on the person’s past performance doing comparable work and the person’s upside potential. What’s odd is that when we hire people we don’t know, we hire people using a process that doesn’t work.
As a recruiter for many, many years who only got paid for making high quality placements, I discovered that measuring pre-hire quality is not hard. It can be summarized using the Quality of Hiring Talent Scorecard in the graphic as a guide. The assumption is that if the person scores high on all of the factors he/she will be a top performer on the job. It’s important to note that the ranking scale is non-linear and the assessment is made in comparison to real job needs.
Quality of Hire Ranking System
Level 1: Meets the bare minimum requirements, typically in the bottom-third of the peer group.
Level 2: Meets the average level of performance doing comparable work.
Level 3: Has a track record of doing work at a level comparable to those in the top-third of the peer group.
Level 4: The quality and quantity of the work performed represents someone in the top 10-15% of the peer group.
Level 5: Past work performance clearly indicates the candidate is in the top 5-10% of the peer group.
In order to determine pre-hire quality of hire, the job first needs to be defined as a series of performance objectives defining top third performance. This is the benchmark used to measure comparable past performance. If the candidate isn’t motivated to do the actual work required, doesn’t fit with the manager and the environment and doesn’t see the job as a true career move, on-the-job performance will suffer regardless of the innate ability of the person hired. I contend that not considering these factors has been the reason traditional hiring practices aren’t effective in predicting on-the-job performance and quality of hire. And, as a result, is the primary cause of unnecessary turnover.
Making the quality of hire assessment requires the gathering of specific evidence of comparable past performance using something like the performance-based interviewing process I advocate. This information can then be used to calculate the total score to measure quality of hire. A huge added plus: Measuring post-hire quality of hire uses the same factors and the pre- and post-hire variances on any of the factors provide good feedback for process improvement. Most often the problems have to do with lack of clarity around real job needs or the use of superficial or oddball interviewing techniques. (This Lynda.com video offers a good introduction to this Performance-based Hiring process.)
Quality of hire is a critical measure but one not possible to make using traditional hiring processes. However, the process described above is identical to how the best people are promoted and why referrals make the best hires. In these cases the hiring decision is based on the person’s past performance doing comparable work combined with the person’s ability to grow, learn and adapt.
By adopting this type of process, companies will not only be able to accurately measure pre- and post-quality of hire but also, as a result, improve on-the-job performance, increase employee satisfaction and reduce turnover.
The financial impact of achieving Q is huge. It has an ROI of about 1000% and if you're hiring more than 10 people a year it will bring millions to the bottom line.
Achieving Q as shown in the graphic, is the not-so-rare occurrence of hiring an outstanding person quickly and at a low cost. It occurs whenever a top performer is promoted into the role or a person is hired who’s either personally known by the hiring manager or highly referred by a trusted advisor.
What is rare is focusing on something other than quality, like reducing cost or time-to-fill, and hiring a top person. Surprisingly, all three can be optimized when the focus is on maximizing quality of hire.
- Use performance profiles, not job descriptions. Rather than describe a job as a laundry list of skills describe it as a series of performance objectives that define top performance. For example, rather than saying, “Have 10 years of experience in fluid dynamics and an MS degree in mechanical engineering,” say, “Lead the design effort for eliminating turbulence in a human transportation pod traveling at Mach 1 through an eight foot diameter tube.” Achieving the design result is the measure of quality. If the person can do this work, he/she has exactly the skills and experiences necessary.
- Assess past performance doing comparable work. Have candidates describe in intense detail what they’ve accomplished that best compares to each of the performance objectives defining on-the-job success. The closer the fit the higher the quality score. What you’ll discover is the people who have done comparable work have used a different mix of skills, experiences and competencies than listed in the job description. That’s why you need to rewrite the job description to focus on outcomes, not inputs.
- Ensure two-sided fit. Make sure the candidate who’s hired fits the culture and sees the job as a true career move. Achieving Q is not a one-sided affair. If the candidate does not see the job as a career move and is not clearly motivated to do the work described in the performance profile, the person will underperform.
- Use evidence, not intuition or emotion, to assess quality of hire. You can use this quality of hire talent scorecard to measure pre-hire quality of hire and accurately predict on-the-job performance. The graphic summarizes the factors needed to measure quality of hire.
Calculating the ROI of Achieving Q
The financial impact of achieving Q is huge. It has an ROI of about 1000% and if you're hiring more than 10 people a year it will bring millions to the bottom line.
This online calculator will guide you through the steps needed to determine the ROI of hiring a top 25% person at your company. It’s based on determining the increased profit generated by a top person compared to the increased cost of hiring this person. An example will help clarify the approach.
Start by determining the incremental profit generated by a typical new hire. One way is to multiple a company’s revenue per employee by its variable profit margin. Then assume a top 25% person increases this by about a third. For example, if revenue per employee is $400 thousand and the variable margin is 40% then the profit contribution on average for each new hire is $160 thousand per year. A top person would increase this by 33% or $55 thousand per year. If the person stays with the company at least three years the overall gain is $165 thousand. The ROI would be determined by comparing this gain to the additional cost of hiring the person. It’s about 1000%.
This ROI impact of improving quality of hire is even more startling when you consider what happens when this impact is scaled to 10 new hires in a year or 100 or even a thousand. Here’s how this plays out. Assume you’re going to hire 100 people over the next 12 months at an average compensation of $100 thousand each. This is $10 million in additional compensation, $40 million in additional revenue and $16 million in additional profit. If all of these new hires are in the top quartile of their peer group this profit increases by about $5.5 million per year or $16.5 million over three years. This is why improving quality of hire is such an important strategic initiative. It’s the gift that keeps on giving.
Compare this to reducing the cost per hire, around $6 thousand each for most companies, by 25%. This will result in a one-time cost savings of $150 thousand for the 100 hires but at a cost of losing a potential $5.5 million in profit per year by hiring stronger people. Bottom line: It makes no strategic sense to focus on cost reduction.
Being strategic suggests it’s far better to measure the impact of hiring stronger people, not the cost to hire them.
Achieving Q represents a strategic shift in thinking about how to raise the talent bar. It’s an important shift to make even if you don’t always achieve it.