The critical outcome of the hiring process still largely remains a black box for most employers: How do you calculate quality of hire?
You’ve put in the time and effort (blood, sweat, and tears) into recruiting, interviewing and finally hiring a new employee. Now you can relax and reap the benefits of a successful hire, right? Not so fast.
But on a more basic level, what we all want to know is: Does my hiring process actually select the right talent or not? When hiring has a 50% failure rate, it’s a question you can’t afford to ignore.
Generally, there is no “one-size-fits-all” metric for quality of hire because it depends on what your priority is. Common quality of hire metrics include turnover rates (e.g., turnover at 90 days after hire or within the first year of hire), ramp up time (e.g., employee’s time to full productivity divided by average time to full productivity), job performance (e.g., measured by performance ratings or objective data like sales), employee engagement (e.g., measured by self-ratings), and cultural fit (e.g., measured by 360 ratings).
If you want to calculate a quality of hire index for an individual employee, it might look something like this:
Quality of Hire (%) = [Job Performance (score out of 100) + Ramp-up Time (score out of 100) + Employee Engagement (score out of 100) + Cultural Fit (score out of 100)] / N
N = number of indicators (in this case, N = 4)
In order to get an indication of how successful your hiring process is in general, this quality of hire index can be scaled by averaging the scores of all hires and including the turnover rate (e.g., the number of employees you hired who have quit or been fired divided by the total number of employees you hired):
Overall Quality of Hire (%) = [average Quality of Hire score + (100 – Turnover Rate)] / 2
A more accurate way to measure the success of your hiring methods is to measure the relative quality of hire. Want to know how well a psychometric assessment identifies talented job candidates? An easy way to do so is by comparing the quality of hire scores of the employees hired using a psychometric assessment to the quality of hire scores of the employees who didn’t complete an assessment.
Collecting the data you need to measure the metrics is the (relatively) easy part. The harder part is conducting the statistical analyses (such as correlations and regressions) that demonstrate the strategic value of your hiring decisions: Determining whether your quality of hire metrics are aligned with critical outcomes such as revenue, EBITDA, and other company goals.
Developing a simple quality of hire index is a valuable starting point to assessing whether your hiring process is on the right track or not.
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