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Why Quality of Hire Is HR’s Most Valuable Metric

June 8, 2020
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Every company wants to find and retain talent that has the skills needed to help their business grow. But even with interviews, skill assessments, and reference checks, it can be time-consuming and challenging to find “the perfect candidate.” And even then, there’s no guarantee that they will turn out to be a good fit.

That’s why it’s important to evaluate your recruiting process and understand the type and caliber of employees your company attracts.

But how can you measure such a quantitatively elusive process? One way is by measuring quality of hire — a metric that combines data from all aspects of the recruiting process to give you more insights into your hiring practices.

While LinkedIn reported in their 2016 Global Recruiting Trends survey that HR professionals say quality of hire is the most valuable recruiting KPI, it can be a complicated and labor-intensive metric to adopt. Still, it’s an incredibly powerful metric that can help shape your company’s recruiting process and better enable you to strategically find and retain top talent.

Here’s a closer look at what quality of hire means, why your company should use it, and how to measure it.

What ‘Quality of Hire’ Is

Let’s start at the beginning with a basic definition: Quality of hire is a metric that measures the value your new hires bring to your organization. It also evaluates your company’s recruiting process and how effective you are at finding and retaining top talent. Furthermore, it can give you deep insights into how to optimize your recruiting process, align hiring managers, source candidates, and more. 

How to Measure Quality of Hire

While there is no standard equation for calculating quality of hire, a general rule of thumb is to follow this equation:

Quality of Hire (%) =
[Indicator 1 (%) + Indicator 2 (%) + Indicator 3 (%)...] / # of Indicators

To use this formula, you first have to choose and quantify each indicator. Ideally, each indicator will be scored out of 100 to simplify your calculations and make it easier to calculate average overall quality of hire, not just the score for an individual new hire.

When it comes to selecting which indicators to measure, that’s up to you and your team, and you have the freedom to tailor this to the needs of your company. First, define what a “quality” hire is for your business. Is that someone who meets performance goals? Who stays with the company longer than a certain amount of days? Who meets their manager’s expectations or ramps up quickly? Sit down with your team and decide which data points and metrics you’ll use to measure quality of hire and what makes the most sense for your organization.

Keep in mind, though, that quality of hire is not an instantaneous measurement — it’s measured over time. As such, you may need to wait a considerable amount of time to collect data on your new hires, but that also allows you to weigh many factors that paint a full picture of your recruiting process and new hires’ abilities.

To help you determine which indicators would be best to measure at your company, we’ve highlighted a few of the most common ones below.

1. Pre-Hire Metrics: Your hiring process starts long before your new hire’s first day, so it’s only natural that you should evaluate the success of your pre-hire process, too. You can weigh a candidate’s pre-hire assessment scores, time-to-hire, and passive candidate conversion rates, for example.

2. Performance:
Successful new hires meet or exceed performance expectations. By using performance review data or manager satisfaction surveys, you can get a better idea of how your new hires are performing. Just note, if this score is determined solely by one manager, you could introduce bias into this calculation. Still, this is the most popular way of measuring quality of hire, with 50% of companies using new hire performance metrics in their calculations, according to the LinkedIn report

3. Retention:
The longer employees stay at your organization, the more impact they can have. Looking at employee tenure and turnover rates can help you better understand which hires were a good fit for your organization and which ones weren’t.

4. Employee Satisfaction: Are your new employees happy at your company? Employee satisfaction has been tied to higher levels of productivity, increased loyalty, and longer tenure. Similar to retention, employee sentiment data can be a powerful indicator of whether your new hires like life at your company. 

Launching regular engagement surveys can not only help you measure quality of hire, but also help you collect feedback, measure the impact of engagement initiatives, and enable you to build a people-first culture.

While these are just a few popular indicators, you can use whatever data and metrics make sense for your organization. Some companies even decide to measure quality of hire in two stages — pre and post-hire. Choose what works best for your business and don’t be afraid to try different approaches until you find one that is right for your needs. 

How Companies Measure Quality of Hire

Every company is different, so it makes sense that they would all measure quality of hire differently. We asked HR and talent professionals how they calculate the metric at their companies and they all had a unique approach. Here are some of the indicators they use for their businesses.

1. Performance and Manager Satisfaction:
Jordan Brannon, President of Coalition Technologies, an e-commerce web design company based in California, has spent the last six months refining the way they measure quality of hire. Eventually, he settled on a two-pronged approach: using key performance indicators and manager satisfaction. And he’s not alone — nearly 43% of companies use manager satisfaction scores in their calculations, according to the LinkedIn report.

To measure the latter, Brannon developed a four-question survey that is sent to team leads one week, one month, and three months after a new hire’s first day. “The survey is numerically valued so scores can be averaged, aggregated by role, and benchmarked,” Brannon said.

Since introducing the metric, Coalition Technologies has drawn significant insights on their new hires’ experience and performance at the company. “We’ve achieved a much clearer picture of how team leads' ratings differ from objective performance measurements, what benchmarks should trigger additional reviews or trainings, and which low and top-performing employees should be flagged for follow-up action,” Brannon said.

2. Interview Accuracy:
While many companies use a variety of indicators to calculate their quality of hire, The QA Lead, an online community and podcast for quality assurance professionals, has landed on four indicators that suit their needs. “Our company uses a combination of four metrics: post-hire performance, team engagement, candidate satisfaction, and interview accuracy,” said Jonathon Wright, a management consultant at the company.

What they found was that they had a low interview accuracy rating across the board, meaning candidates’ interview scores did not align with their actual performance.

Wright and his team used that discovery to reassess their entire interview process. “We needed candidates to give us a more accurate representation of their potential rather than exaggerated statements, so we changed our [interview] questions to more personal and situational ones,” Wright said. “Our recruiters can receive more accurate statements during interviews with the current system, which helps our company better assess our candidate pool.”

Calculating Quality of Hire: An Example

Let’s say we wanted to measure the quality of hire for an individual using job performance, manager satisfaction, and employee satisfaction as our indicators. Our equation will look like this:

[Performance % + Manager Satisfaction % + Employee Satisfaction %] / 3

In order to make this calculation, you must ensure all of your indicators use the same scale, meaning they are all scored out of 10, 100, or another consistent figure.

For this example, let’s say:

  1. This employee had a performance review and scored a 75% out of 100%.
  2. Their manager filled out a new hire satisfaction survey and gave them an 80% out of 100%.
  3. The new hire took an engagement survey and scored their job satisfaction at 90% out of 100%.

Our equation will now be:

[75% + 80% + 90%] / 3

This would give us a quality of hire score of 81.7% for this individual. You can compare this score to other individual’s scores or to your average quality of hire score to gain more insight into how your hired candidates stack up to the rest of your organization.

If you want to calculate the quality of hire score for an entire new hire class or for any new hires that joined your company during a particular time frame, just take the average scores of each of your indicators and calculate the metric the same as above. 

Why You Should Measure Quality of Hire

While measuring quality of hire can be a challenging and time-consuming undertaking, it’s a powerful metric that can give you helpful and actionable insights into your hiring process. Improving your company’s quality of hire score can not only help you reduce the costs associated with finding and retaining top talent, it can also help your business drive revenue if your employees are more productive and stay with your company longer.

Quality of hire helps you better understand your recruiting process and the talent you attract, but when it comes to retaining that talent, it’s crucial to have the right tools at your disposal.

From measuring employee performance to employee satisfaction, Lattice makes it easier than ever to collect the data you need to measure quality of hire at your organization. See why over 1,200 companies choose Lattice to measure performance and engagement at their organizations — chat with a Lattice product expert today.