The easiest way to calculate quality of hire

Quality of hire is one of the most popular metrics employed by recruiters, even though confusion persists over what it means, how to measure it, and what the metric can be used for. SHRM calls quality of hire the “holy grail of recruiting” because of its important yet enigmatic nature.

Quality of hire is intended to be a measurement of the value an employee has brought to the organization. The challenge? Calculating quality or value is difficult to standardize. Every organization will have a different idea of what makes for a good employee. Plus, most measures of quality are highly subjective. The idea of assigning a numerical score to an employee’s cultural fit or their value to the company can feel difficult and distasteful.

Even with these drawbacks, quality of hire continues to be a popular metric because of its immense potential. When calculated correctly, quality of hire can be a powerful tool for improving your hiring strategy and ultimately hiring better employees. You can leverage quality of hire to minimize the costs associated with hiring mistakes and to help boost your company’s revenue by identifying more promising potential hires.

Quantifying quality

There’s no getting around it: Measuring quality of hire requires assessing subjective data using hard numbers. How do you assign a numerical value to an employee’s hard work, effort, or cultural fit? Well, because companies assess employees’ abilities and efforts frequently, it’s fairly easy to turn that into a quality of hire score without using additional measurements.

Companies often use the metrics below to evaluate the quality of hire:

  • Performance appraisal scores: A 2017 LinkedIn study found that this was the most popular measurement companies use to calculate quality of hire. It involves grading employee performance on a 100-point scale. There is no standardized way to do this, and some methods can be rather complicated.
  • Employee retention: Does the new hire have staying power? Are they still at the company after 12 months, or 18? An employee who was let go after just 6 months would typically be classified as a low-quality hire.
  • 360 Reviews: Instead of being reviewed only by a manager, employees receive professional feedback from colleagues above, below, and parallel to them in the org chart. This is a great measure for assessing cultural fit and engagement.
  • Hiring-manager satisfaction surveys and traditional performance reviews.
  • Employee satisfaction: Is the employee happy with their position and the company?
  • Other performance metrics: This includes position-specific success metrics, such as sales quotas and client satisfaction scores.

Although quality-of-hire scores derive from employee evaluations, this recruiting metric is not, in itself, a means for assessing your workforce. Quality of hire is a measure of how well the hiring process worked, not an evaluation of the employees’ future performance at the company.

The easiest way to calculate quality of hire

No one-size-fits-all equation exists for quality of hire because a true measure of quality will depend heavily on each organization’s goals and priorities, as well as the requirements of each individual position. For example, it may be appropriate to assess a sales job based on revenue generated, but that wouldn’t make any sense for a receptionist.

First, flesh out the criteria you will use to evaluate a position. Some metrics, like performance reviews, may be universal, while others, like sales quotas or number of support tickets closed, will be position-specific. You want to choose a range of criteria that gives you a picture of how well the employee has performed in their role to date.

After deciding what criteria matter most in your evaluation, use this simple formula to standardize your results:

Quality of hire caluclation

Just plug in the performance indicators that are the most important for the position, and make sure they are measured on a scale of 0-100. Note: If you don’t already, you’ll need to work this 0-100 scale into your performance reviews and other employee assessments in order for this equation to work.

Let’s run through a couple of examples.

Example #1: Employee A is a salesperson at a small marketing agency. HR decides to evaluate the quality of hire for salespeople based on sales goals, 360 reviews, and hiring-manager satisfaction scores. In the first year, Employee A meets 100% of her sales targets. Her 360 reviews are very positive, showing a 95% satisfaction rate among her peers. Her hiring manager reports that he is very happy with her performance; he rates her 92/100.

Quality of hire caluclation, example 1

Example #2: Employee B is a receptionist at the same company. HR decides to evaluate the quality of hire for this position based solely on 360 reviews and hiring-manager satisfaction scores. Employee B’s 360 reviews show an 80% satisfaction rate among his peers. His hiring manager rates his performance as a 75/100.

Quality of hire caluclation, example 2

It can take a while for employees to get up to speed and start meeting expectations, so think about the appropriate amount of time before beginning to calculate quality of hire—likely after at least six months.

How to apply quality of hire scores

Again, this metric is tricky because it’s subjective: The connections between recruiter actions and employee performance aren’t linear. This makes it harder to set concrete goals for improving quality of hire like you would for other metrics. Instead of viewing it as a performance barometer, use it as a signpost to help improve your hiring process going forward in a number of ways.

Isolate predictive factors

Quality of hire is a measure of how recruiting and hiring actions affected hire quality. By using the metric to identify very successful past hires, you can look back in the hiring process and try to isolate recruiting factors that would help predict good quality hires. For example, you might find that many of your most successful project managers have backgrounds in a similar industry or possess more on-the-job experience than formal training. You could also refer back to your interview evaluation form for the candidate, to see how they scored. Keep these factors in mind as you screen new candidates and pick out the ones with the best potential.

On the other hand, you can also use quality of hire to identify red-flag characteristics of poor hires. A study by Mark Murphy found that 46% of hires fail in the first 18 months. Anything you can do to earmark potential red flags early might help decrease that number.

Cross-reference with other metrics

No metric exists in a void. When paired with other recruiting metrics, quality of hire can provide many new insights.

Calculate quality of hire as it relates to different recruitment sources as a way to evaluate recruiting-source quality. For example, you may find that your employees scoring highest on the quality scale came from employee referrals or a campus recruiting event. Consider allocating more resources towards sources that lead to high-quality employees.

You can also look for correlations between time to hire and quality of hire. Does a longer candidate-selection process lead to higher-quality hires? Or does it have the opposite effect—taking too long to make a decision causes high-quality candidates to abandon the process and accept offers elsewhere.

Encourage investment by leadership

Hiring better performers has a direct impact on increasing revenue, even if those employees aren’t directly in revenue-generating positions. At the same time, replacing employees who are performing poorly costs not just time and money, but also hurts the company with lost productivity and morale.

Use quality of hire measurements to illustrate how recruiting efforts affect both the quality of employees and the company’s bottom line. This is a powerful argument for investing in hiring programs and resources as a means of company growth and development.

Evaluating process, not people

While quality of hire has a lot of useful applications, view it as a measure of process effectiveness, not as a scorecard.

In the article A modern take on data-driven recruiting, Google recruiter Jeff Moore says, "There are so many considerations that go into employee performance beyond the quality of the hire. Poor performance of a new hire could be attributed to management issues, team troubles, culture problems, strategic misfires from leadership, or some other situation that causes a new hire to struggle."

Employee performance is too nuanced to be summed up by a single number and, therefore, shouldn’t be seen as a reflection of the long-term quality and potential of all employees, or recruiters. Use quality of hire metrics merely as a signpost to guide you towards the best hires and refine your recruiting process.

This article was originally posted on the Google Hire blog

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