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How to measure quality of hire

Nasser Oudjidane
December 19, 2022

With trouble brewing in the global economy, the importance of hiring the right people – not disengaged duds – has become ever more salient. But what exactly do we mean by quality of hire (QoH)? Buckle up as we reveal magic’s greatest secrets.

In turbulent times, quality of hire matters more

You don’t need us to remind you that the tech industry is experiencing a rough ride. Some of the most hyped tech companies have turned out to be empires built on sand, and unfortunately, much-publicised lay-offs at businesses from Klarna to Carvana have followed suit. In a world where even Instagram has stopped hiring, it’s clear that something is rotten in the state of Denmark, to quote 16th century software engineer William Shakespeare. 

In a sign of the times, Sequoia Capital, whose reputation as the Nostradamus of tech predictions is well deserved, have released a 52-slide survival guide for how businesses can “avoid the death spiral”. They do offer a glimmer of hope, as the report states: “Recruiting is about to get easier. All the FANG have hiring freezes.”

Nevertheless, at a time like this, it’s understandable if you’re thinking carefully about each and every appointment. A bad hire can be an expensive mistake. In fact, recruiter Jörgen Sundberg once estimated that the cost of hiring and onboarding a new employee is up to $240,000. These hiring mistakes may be more common than you think. According to Mark Murphy, author of ‘Hiring for Attitude’, almost half of new hires (46%) “fail” within the first 18 months. As scary as it sounds, hiring the right or wrong person could make or break a company.

Can you measure quality of hire?

If beauty is in the eye of the beholder, what about brilliance? First, let’s explain what we mean by quality of hire. This Workable blog by Nikoletta Bika gives a straightforward definition:

‘Quality of hire (QoH) measures the value new hires bring to a company. In this context, ‘value’ usually means how much a new hire contributes to their company’s long term success by completing tasks, improving their work and helping others.’

But even as an advocate of QoH orthodoxy, Nikoletta admits that the concept of ‘quality’ is often “vague and subjective”. So, how do we measure QoH? Nikoletta points to some of the “quantifiable recruitment metrics”, such as:

  • New hire performance metrics, like sales quotas, number of product units delivered, or customer satisfaction ratings that can be linked to the individual.
  • Turnover and retention, although Nikoletta concedes these are “risky metrics” as there may be other factors at play regarding whether a new hire is the right fit.
  • Hiring manager satisfaction ratings, which may indicate how happy hiring managers are with the quality of their hires.

There’s even a simple formula Nikoletta recommends (see below). Note: N refers to the number of indicators you use to measure QoH.

Elsewhere, this Beamery blog suggests a number of actionable tips for measuring ‘quality’ once a new hire has started. Here are some things you can do:

  • Ask managers to “rank order new hires”.
  • Check whether they’ve been awarded any bonuses, which may indicate performance levels.
  • Assess their error rate or number of mistakes.
  • Analyse “pre-hire metrics”, such as counter offers the candidate received; the length of time they were on the market; whether they’ve won awards in the past; and whether other search professionals know them.

Additionally, the Beamery blog highlights the ELV (Employee-Lifetime-Value) theory as a way to “track the contributions that new hires make to your business over time”. Below is a visual (courtesy of Greenhouse) which demonstrates what this looks like:

The metrics that matter to CEOs

When deciding who to hire (and who to retain), does it help if we understand the mindset of a CEO? This Visier blog gives the ‘top 10 strategic talent acquisition and HR metrics that CEOs want to see’.

Don’t underestimate ‘attitude’

Earlier we mentioned Mark Murphy, author of ‘Hiring for Attitude’. In an interview with Forbes, Mark describes how companies like Google and Apple are moving away from ‘technical proficiency’ as the determining factor as to whether to make a hire. Instead, Mark says: “Attitude is what today’s companies are hiring for. And not just any attitude; companies want attitudes that perfectly match their unique culture”.

But how do you control for ‘attitude’ when any interviewee can perform miracles on the day? Mark underlines the importance of referrals:

‘Companies are finding their best people through employee referrals and networking. They have started to realise that the high performers they already have fit the attitude they want and that these are the people they should be asking to help find more people just like them.’

It’s no secret that we’ve been banging the drum for referrals as a great way to hire. For more tips, read our guide to building a referral culture

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