QUALITY OF HIRE: THE ELUSIVE WORKFORCE METRIC

Presented by Mary Ann Downey

ABOUT THE PRESENTER

Attorney by training, Entrepreneur, Screen Writer, Human Resources expert; specializing in Organizational Effectiveness, Workforce Planning, HR Analytics, Diversity and International HR

Academic Bachelor Degree in History/Economics at Illinois State University

(Normal, IL) Juris Doctorate from Saint Louis University (St. Louis, MO) Master Degree in Human Resources and Industrial Relations from

University of Illinois (Champaign, IL)

Professional Ten years in large global organizations: Caterpillar (Peoria, IL),

General Motors (Detroit, MI) and ING (Atlanta, GA) Director for workforce productivity think tank: Institute for

Corporate Productivity (Seattle, WA) Started consulting firm in July 2011

Credentials Licensed to practice law in state of Illinois (since 1998) Published in People & Strategy Journal, Talent Management

Magazine and Diversity Executive among others Frequent presenter including Society for Industrial and

Organizational Psychology (SIOP), Human Resources People & Strategy (HRPS) and Catalyst Award

2

ASK THE AUDIENCE

We are thinking about (maybe) starting to measure QoH

We are trying to measure QoH but cannot agree on the best methodology

We started measuring QoH but cannot agree what the metrics mean

We have a QoH metric but want to take it to the “next level”

We tried to measure QoH but have given up

3

Where is your organization in the quest of measuring Quality of Hire (QoH) metrics?

QUALITY OF HIRE (QOH) AGENDA

Introduction - What is QoH and Why is it important to organizations?

How are organizations measuring QoH?

What are the barriers to effectively measuring and using QoH?

Recommend steps to adopt QoH in your organization

4

MEASURING THE WORKFORCE Quality of Hire

External Talent Ability to effectively source, select and on-board new employees

Quality of Movement Internal Talent Ability to develop and create opportunities for current employees

(Transfers/Promotions) Quality of Selection

Internal & External Talent Ability to effectively source/develop, select and on-board employees

Time to Full Productivity Internal &/or External Talent Ability of a new employee to meet/exceed job qualifications

5

MEASURING QUALITY OF HIRE

75%

16%

Should

Does

Overall

Results shown: High or Very High Extent Source: i4cp Talent Management Metrics Survey, May 2010

6

It is an opportunity to gain a competitive advantage.

7%

22%

Does

High-Performing OrganizationsLow-Performing Organizations

HOW ARE ORGANIZATIONS USING QOH?

Evaluate immediate staffing outcomes Organization Recruiter

Assess the effectiveness of a tool, process change or candidate source

Quantify the workforce qualities

Predict (and intervene) in staffing outcomes

Evaluate manager talent identification prowess

7

EVALUATING STAFFING OUTCOMES

“If an employee leaves within the first year – de facto that was not a quality hire.”

- Alexis Fink PhD, Organizational Consultant, Intel Corporation formerly with Microsoft Corporation

DOING THE CALCULATIONS

# of New Hire Terminations

in Reporting Period

# of New Hires in Reporting Period

9

New Hire Termination Rate

# of New Hires - # of New Hire Terminations

in Reporting Period

X 100 X 100

New Hire Retention Rate

# of New Hires in Reporting Period

CHALLENGES TO CALCULATE

Did not starts (DNS) Are they coded correctly in the system? Should the DNS be included? Recommendation: Exclude from new hire calculation but calculate DNS separately

Interns/Temporary Employees Are they coded correctly in the system? Should temporary employees be included? Recommendation: What is most important to your organization - that the numbers “tie” or perception of the calculation?

10

CHALLENGES TO CALCULATE (CONT.)

Inherit differences between roles Entry level roles are “expected” to turnover faster than more

professional or senior roles Effort to recruit roles differs based on required skills and

availability

Be conscious of these differences when comparing rates against different business units, recruiters, etc.

Recommendation: Calculate by Job Code, Family, Bands or (in the US) EEO-1 category

11

CHALLENGES TO CALCULATE (CONT.) Timing

QoH does not reveal itself immediately (unless it is a really bad hire) Calculating requires looking backward for at least two years

Reorganizations Organization structures are dynamic which makes year-over-year

comparisons difficult Do not create reporting by leaders (people) or by artificial organization

structures Geography Functions Employee Type

Recommendation: Create exclusive QoH reports which are updated quarterly to spot trends and can be analyzed based on history (apples-to-apples)

12

EDUCATION INDUSTRY EXAMPLE

13

2012 Hires

as of 03/13

as of 06/13

as of 09/13

as of 12/13

2011Actual

2010 Actual

2009 Actual

Overall Termination Rate 13.8% 11.7% 7.2%Number of New Employees Hired 640 580 525 410Number of 1st year Terminations 186 152 134 89New Hire Termination Rate 29.1% 26.2% 25.5% 21.7%

Northeast Region 211 44.0% 39.5% 37.8% 32.2%Southeast Region 160 28.8% 30.2% 31.8% 27.9%Midwest Region 141 12.8% 10.1% 8.9% 7.2%West Region 128 22.7% 15.1% 13.8% 11.6%

Faculty 448 24.1% 26.3% 25.1% 20.3%Campus Staff 152 46.1% 32.6% 31.8% 32.1%Corporate Staff 40 20.0% 12.1% 10.8% 13.5%

2013Hires Q1 2013 Q2 2013 Q3 2013 Q4 2013 2012

Actual2011

Actual2010

Actual2009

Actual7 35 39 44 29

4.5% 5.5% 6.7% 8.4% 7.1%

14.9%

Did Not Starts 155

B2B PROVIDER EXAMPLE

2012 2011 2010

Overall Termination Rate 16.6% 15.2% 14.1%New Hire Termination Rate 24.5% 29.6% 29.0%Number of New Hires 1,617 1,337 1,213Number of First Year Terminations 396 395 351Overall New Hire Term Ratio 1.48 1.95 2.06

Entry-Level Positions 27.8% 33.9% 39.4%Established Positions 18.1% 17.7% 16.2%

Executive & Management 10.0% 12.0% 22.0%Professional 17.5% 16.2% 15.5%Technicians 21.2% 23.6% 22.5%Sales Workers 25.5% 39.0% 42.1%Administration 27.5% 26.1% 24.1%

Number of Interns Hired 62 40 30Number of Intern Conversion 32 14 9Intern Coversion Rate 52% 35% 30%

14

OTHER METHODS TO EVALUATE STAFFING OUTCOMES

Performance Ratings Some organizations review performance rating distribution

exceeds expectations, meets, needs improvement Challenge is confidence in performance rating process

Promotions Some organizations review how quickly or number of

promotions Challenge is intervening circumstances/time between hiring

decision and promotion

15

THE FORMULA APPROACH

Quality of Hire = (PR + HP + HR) / N PR = Average job performance rating of new hires HP = % of new hires reaching acceptable productivity with

acceptable time frame HR = % of new hires retained after one year N = number of indicators

Example:

PR = Average 3.5 on a 5.0 scale = 70%

HP = Of 100 hires made one year ago, 75 are meeting acceptable productivity levels = 75%

HR = 20% turnover = 80% HR

N = 3

Quality of Hire = (70 + 75 + 80) / 3 = 75

Source: Steve Lowisz, President and CEO, Qualigence, Inc.; http://www.recruitingtrends.com/quality-of-hire-the-top-recruiting-metric/

16

QUANTIFICATION OF THE WORKFORCE

Assessing if the workforce is becoming more skilled and talented

Determine what identifiable traits would factor into a “workforce capability” equation Years of Experience Type of Education Quality of Education Credentials

Scored former and new employees to determine if the workforce was getting “better”

17

PREDICTING “SUCCESSFUL” STAFFING OUTCOMES

Frustrated with QoH being a lagging indicator – quantify in “real” time the success of the hire

Survey hiring manager about the process and the early performance of the new hire Would you hire this person again?

Survey the new hire about the process and the culture of the organization Would you accept this position again?

18

PREDICTING “SUCCESSFUL” STAFFING OUTCOMES (CONT.)

Challenges:

Will managers and new hires be “honest”?

Should HR intervene in a “At Risk” situation?

“Survey” fatigue?

19

BOTH PARTIES

SAY “YES”

BOTH PARTIES

SAY “NO”

PARTIES DISAGREE

GOOD HIRE

AT RISK HIRE

BAD HIRE

ASSESSING THE SELECTION TOOL

Examined the relationship between selection tool results and new hire performance measures

Evaluation forms sent to hiring managers between 3-9 months after hire (dependent on employee segment)

Compared objective and subjective quality data against the selection tool results to validate the results and recommend future strategy

20

Use performance criteria to evaluate selection tool results.

ASSESSING THE SELECTION TOOL (CONT.)

Objective performance

Subjective Competency Leadership Managing Execution Building Relationships Generating Talent and

Organization Capability

21

Data Gathered

Learning and Applying Personal Experience

Subjective Quality Ability/Job Fit Motivation Fit Speed to Performance General Performance

Rehire Likelihood

THE HIRING BATTING AVERAGE

Evaluating manager hiring prowess

Idea from a Jack Welch column http://www.welchway.com/Management/People-

Management/Hiring Right/The-Hiring-Batting-Average.aspx

Every candidate is evaluated by 3 people beyond the hiring manager

The evaluators give each candidate a “hire”/ “don’t hire” recommendation

Six months later the hiring manager evaluates new hires with a “exceeds,” “meets” or “below”

22

THE HIRING BATTING AVERAGE (CONT.)

Example Give 10 “hire”

recommendations 6 are “meeting” or

“exceeding expectations” .600 hba

23

Calculate hiring recommendations with performance.

Benefits Identify talented “talent

spotters” Empower and engage

current employees Improve the on-boarding

process for the new hire

WHY AREN’T WE?

“Quality” is a subjective term – one size rarely fits all

There is no clear measuring stick (benchmark)

It takes resources and effort to measure

The accountability hot potato – if the metric is “bad” – who is “at fault” – Staffing or Management?

24

So, if we all agree that we should measure QoH, why aren’t we?

QUALITY IS IN THE EYE OF THE BEHOLDER.

A “quality” hire is dependent on the role, department, and even the economy.

There are a number of factors that if improved can signal a quality hire Longer Tenure Promotable (Time to Promotion) Increase Productivity Manager Satisfaction/Assessment Additional Credentials Compensation/Cost

25

WHAT IS YOUR “HIRING PHILOSOPHY”?

Not only is “quality” dependent on the role/function/ work team…it is also dependent on organizational hiring philosophy…

If your organization has invested in a number of assessment tools both skill and personality based…then your “quality expectation” will be higher than an organization that hires for “culture” such as Zappos or Southwest which expects and encourages employees to “wash out” early.

26

THE BEST BENCHMARK IS AGAINST YOURSELF.

Rather than looking for external benchmarks (which will differ widely) organizations should look Across similar business units By geography Over time (year over year) By hiring manager

27

CREATE A MEASUREMENT PLAN.

For each measurement - what is the purpose? To investigate (diagnostic) Create accountability (scorecard) Evaluate performance (scorecard) To monitor (dashboard)

A good measurement can only have one master

Need a one/two reporting period “grace” period before instituting accountability/ performance measures

28

COMMITMENT TO MEASUREMENT IS NEEDED.

TO WHAT EXTENT DOES YOUR ORGANIZATION HAVE A “WORKFORCE MEASUREMENT STRATEGY”?

20% Results: High or Very High Extent

Source: i4cp Talent Management Measurement Survey, May 2010

Organizations get what they put into measurement. Dedicate resources Buy-in to survey Commitment to act

(judiciously)

29

WHAT DO HIGH-PERFORMING ORGANIZATIONS DO?

Create and communicate a strategic plan

Secure appropriate buy-in from leadership

Segment the workforce and concentrate on the problem or value-added positions

Dedicated (and highly skilled) resources Statistician IO psychologist

Customize measurement criteria by segment

Align HR function around the measurement plan

30

YOUR NEXT STEPS What is your organization’s Hiring Philosophy? Does your organization have an Employee Value Proposition? What is your organizations viewpoint on talent identification and

development? Who is interested in Quality of Hire?

Head of HR Recruiting Leader Senior Leadership Team Line Management

Are employee segments already identified? How sophisticated is your human capital data? Create and document your Measurement Strategy

31

TIPS FOR SUCCESS

Be clear about why you are investing in measurement Diagnosis Evaluate Create accountability Predict

Determine feasibility for your organization

Capture a baseline measurement

Set goals or create hypothesis (what will good look like)?

Tailor reports to audience need and appetite

32

EXAMPLE

2012 2011 2010Retention of New Hires

Overall Termination Rate 16.6% 15.2% 14.1%New Hire Termination Rate 24.5% 29.6% 29.0%Number of new hires 1,617 1,337 1,213Number of first year terminations 396 395 351Overall: New Hire Term Ratio 1.48 1.95 2.06

PerformancePerformance is assessed by Hiring Manager - 4 months after start date

% of New Hires that Exceed Expectations 15.0% 12.5% 11.5%% of New Hire that Meet Expectations 74.5% 75.0% 73.5%% of New Hires that Do Not Meet Expectations 10.5% 12.5% 15.0%

Culture FitCulture Fit is assessed by the Employee & Manager through Opinion Survey

% of "Good" Hires 79.5% 78.5% 76.0%% of "At Risk" Hires 13.0% 15.5% 15.0%% of "Bad" Hires 7.5% 6.0% 9.0%

Employee Development & MobilityWorking for Organization 75.5% 70.5% 56.5%Progression Promotion n/a 10.6% 15.9%Transfer/Promoted n/a 2.7% 7.9%

Consolidated Quality of Hire Report This is the cover sheet for a

series of reports that are produced on an annual basis

This report requires the following HRIS data Hire Date Term Date Promotion Transfer

This report uses data acquired from opinion surveys Hiring Manager New Employee

33

RECOMMENDED READING

34

DEFINING HIGH PERFORMANCE

These companies performed better over the past five years, based on these four indicators:

1. Revenue growth

2. Market share

3. Profitability

4. Customer satisfaction

35

i4cp defines high-performance organizations consistently outperform most of their competitors for extended periods of time.

SOURCES OF POOR QUALITY

Cited in: Quality of Hire – The Next Edge in Corporate Performance. Taleo (2004)

36

DRIVING QUALITY

Cited in: Quality of Hire – The Next Edge in Corporate Performance. Taleo (2004)

37