Recruiting Metrics #2 Quality of Hire: The KPI That Will Shape The Future of Recruiting
In an economy where everyone talks about the threatening skill gap and the major challenge of identifying fitting employees, recruiting has emerged as one of the most essential business functions.
The more important recruiting becomes, the more pressure is allocated to HR and recruiting professionals to ensure effective management of recruiting procedures. And since “you can’t manage what you can’t measure”, data have become a HUGE THING in recruiting.
While many things can be measured in recruiting procedures, not everything is equally important. What lies at the core of every recruitment process, is hiring people who are capable of creating the most value in the organization from their respective position. This is what really matters and it can be measured through quality of hire!
What Is Quality of Hire
Quality of hire has been considered, for quite some time now, as the most valuable recruiting KPI.
The Society of Human Resources Management (SHRM) named the metric “The Holy Grail of Recruiting” back in 2015, and in its 2017 Talent Acquisition Benchmarking Report, SHRM highlighted it as one of the KPIs gaining continued organizational support and recognition.
Furthermore, in 2019 Linkedin published the Future of Recruiting report, according to which 88% of 2,848 recruiting professionals that had participated in the survey, identified quality of hire as the most useful recruiting metric for the next five years, with 48% already putting it in use. The number of businesses putting it in use increased by 23%, compared to a similar survey conducted 3 years ago.
But, what is quality of hire actually?
While the exact definition will differ depending on the company, role, and available metrics, generally speaking, Quality of hire (QoH): measures the value new hires bring to a company. Where ‘value’ is defined by how much a new hire contributes to the company’s long-term success by completing tasks, improving their work and helping others.
Quality of Hire Calculation
The reason quality of hire is considered the holy grail of recruiting and such an underutilized KPIs, is tightly related to the difficulty in measuring it. Because, how can one quantify an employee’s hard work, effort and impact of interacting with others?
“Not everything that counts can be counted, and not everything that can be counted, counts.”
According to SHRM,“Quality-of-hire metrics are critical to understanding the effectiveness of your company’s hiring process but, for many, figuring out how to define the measurement is a challenge.”
So, how do organizations measure quality of hire – the KPI that really counts?
According to LinkedIn’s The Future of Recruiting, to capture quality of hire, most businesses use some combination of three core metrics: retention, engagement, and performance ratings.
- Employee retention is the percentage of the newly hired employees that remain in a company for a fixed time period (e.g. a quarter). If employees tend to leave after a few months, this is an indication of low-quality hire.
- Employee engagement is the feeling and connection employees have towards the company they work for, affecting their focus, commitment, and productivity. Employee engagement surveys are usually used to quantify the level of engagement. The goal here is to evaluate the recruiting process in terms of its ability to attract and select people that would appreciate the work environment and would feel motivated by its culture and benefits.
- Performance ratings include measurements that indicate the added value of a new hire. The data can come from either the line manager’s evaluation or – a more objective – set of position related goals, that are communicated to the newly hired employee, sometimes, even before the hiring. The goals should definitely be SMART. Only then, newcomers are able to focus their efforts towards achieving them. Achieved sales vs target within the first 6 months, cost reduction within the first year or increase in customer satisfaction ratings are just a few examples of goals an employee can be entrusted with.
The Quality of Hire Formula
To use the formula below, you should start by evaluating your position. What are the criteria you’d use to assess an employee’s performance in a given position? For this to be effective, you should use various organization and position-specific criteria. The more diverse input you have, the more realistic representation of one’s performance you’ll be able to create.
After deciding on the criteria you’ll be using, it’s time to plug them into the formula.
For example, you have concluded to use these 3 indicators to evaluate an employee’s performance:
- Indicator #1: line manager’s feedback a 90%
- Indicator #2: employee engagement a 85%
- Indicator #3: customer satisfaction rates improvement a 100%
Quality of hire = (90+85+100)/3 X 100% = 91,7%
Have in mind, that in order for this equation to work you’ll need to work this 0-100 scale into your indicators.
Why Quality of Hire Is So Important
While there are evidently many supporters of quality of hire, it may not be equally evident, why this metric is considered so useful for recruiting. Well, this is about to change!
Quality of Hire Enables Strategic Recruiting
Most recruiting teams usually track time to hire, cost per hire, candidates per hire, or offer acceptance rate. While these metrics are useful because they tell what a recruiting team does, they find it difficult to reflect how well the team does it. Meaning, these measurements, stop upon hiring and contain no insights on the hires’ performance.
But wait a minute. The whole point of recruiting procedures is not just to close fast as many positions as possible. The true value lies in identifying and selecting is the hire, who’s supposed to perform best in the context of a specific position.
“The fastest hire isn’t the best hire, and the cheapest hire isn’t the best hire. It’s all about the result — the business impact” says Ross Baron Head of Recruiting for Western Europe at TikTok
So, these KPIs are more tactical. This is a problem though, considering that the future of recruiting will revolve around strategic metrics. Those that measure the business outcomes of recruiting team’s efforts—not just the actions they take. Only by measuring what really counts, recruiting professionals will be able to stand as true business partners and play the strategic role everyone expects of them.
Quality of Hire Can Improve Your Recruiting
Quality of hire is indeed a more strategic measurement. Its strategic value lies in the insights it provides on how well the overall selection process works and what kind of interventions are required to ensure process effectiveness.
Recruiting consists of multiple steps – sourcing, screening, multiple interviews, and various KSAOs assessments – all in place to help in the identification of the candidate that will perform best in a certain position.
Having access to quality of hire data opens the possibility of evaluating all these steps, based on the quality of hire they lead to and then tweaking the parts that are adding little value to the output. Which in this case, is the hired candidate. So, if there is a process that makes no difference in terms of the candidate’s quality, you should consider eliminating it, because it creates extra costs without any ROI.
“Hiring for quality is fundamentally different than just filling positions,” says Lou Adler, the CEO, and founder of The Adler Group. And “to do it right, you have to track performance metrics like quality of hire […]”. To start measuring it, recruiting has to firstly move from operational to more strategic and results-based metrics, like the quality of hire. This will result in recruiting becoming the driving force towards a solution for the problem of attraction, selection and talent retention.