Quality of Hire: Everything You Need to Know About the Metric
New technology and changing attitudes towards recruiting have turned hiring managers into strategic partners within their organizations. But reaching this position requires a real effort from those in talent acquisition to prove their worth–to demonstrate that the work they do and the resources they require provide measurable benefits to the business.
As a result, quality of hire has become one of the most important, and at the same time most difficult, metrics to track. Quality of hire represents the value new employees bring to the company, and therefore demonstrates how effective the recruitment team is at finding and connecting hiring managers with the right people for each available job. Considering that there are factors such as retention and cultural fit used in some calculations, it’s also a measurement of the on-boarding process, the capability of management, and more.
We’ve all heard some variation of the saying, “You can’t improve what you don’t measure,” and you would think that measuring quality of hire would be top of the list. Especially when you consider that, by many estimates, nearly half of all new hires are classified as failures within 18 months. Yet the more subjective nature of quality of hire data has led many in talent acquisition to skirt the issue, or avoid it entirely.
Rather than fearing such an important metric due to its subjectivity, or in case it indicates poor performance among the talent acquisition team, HR leaders should embrace quality of hire. It’s a metric that can be used to calculate, and then improve, their own results. In this post we’ll explain the quality of hire metric, and discuss how recruiters can use it in more effective and accurate ways.
How to Calculate Quality of Hire
Every business, and even individual teams within businesses, can measure performance and perceive value differently. But there are certain factors every company can focus on when calculating quality of hire. Job performance and productivity, ramp-up time to reach acceptable work levels, engagement with the company and cultural fit, and job tenure should be on every HR leader’s mind in relation to quality of hire.
Here’s one example of a quality of hire formula:
Quality of Hire (%) = (Job Performance + Ramp-up Time + Engagement + Cultural Fit)/N
(All scored out of 100, N = number of indicators)
This approach takes into account not just employee performance and productivity (ramp-up time), but also scores an employee’s engagement with, and suitability for, the corporate culture.
Then by averaging the quality of hire scores for each new employee, combined with your turnover rate (number of hired employees who quit or were fired, divided by the total number of employees hired) you can calculate the overall success of your hiring process:
Overall Quality of Hire (%) = [Avg. Quality of Hire score + (100 – Turnover Rate)]/2
Or, you could calculate your company’s overall quality of hiring score another way, using components from the individual scoring formula to create a company-wide formula:
Overall Quality of Hire (%) = (PR + HP + HR)/N
- PR = Average job performance rating of all new hires
- HP = % of new hires with acceptable ramp-up time within acceptable time frame
- HR = % of new hires retained after one year
Individual talent acquisition teams should fine tune their own quality of hire formulas to reflect their company’s strategic goals, but the calculations here should give any HR leader a good starting point.
Challenges of Using Quality of Hire
As we’ve already mentioned, much of the data that goes into a quality of hire calculation is subjective. Employee engagement and cultural fit are especially difficult to define in numeric terms. But standardizing measurements of quality will do more to determine the value of a new employee than any of the traditional metrics applied to recruiting methods.
Calculating figures like cost per hire, volume of hires, even time to fill, doesn’t actually measure overall staff performance. This focuses on the talent acquisition process, not its impact on a company’s business objectives. Relying too heavily on recruiting metrics to determine new employee quality can even lead to an inaccurate measurement of recruiter performance–one that prioritizes speed over value.
Developing an effective quality of hire measurement requires coordination between HR leaders and senior leaders across all departments. Standardized assessments of job performance for each division or job category, along with realistic productivity and ramp-up time expectations, are essential. And surveys of both employees and their managers, in regards to engagement and cultural fit, can overcome the hurdle of subjectivity.
Utilizing Quality of Hire Over Time
Once a quality of hire measurement is in place, talent acquisition leaders may feel the need to compare their results with figures for their industry, or at least reported results from other companies. But this may prove to be a waste of time, as we know each business will measure quality of hire in their own way. If industry comparisons are not optional, data from the Saratoga Institute can be useful. But recruiters may be best served by comparing results within their own organization year over year.
This means taking time to develop a quality of hire measurement that incorporates not just staffing requirements, but also company-wide standards and goals. By implementing some version of the calculations above, and basing each indicator in the formula on accurate, uniformly collected data, HR leaders can present an in-depth metric to their senior colleagues, and demonstrate just how effective they are at bringing in valuable employees.
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