Quality of Hire: The ROI of Hiring Assessments
For many companies in the restaurant, hotel, retail, and healthcare industries, it’s that time again: The economy is improving and employee turnover is rising. But it’s not just these employers who suffer – any employer who hires a preponderance of low wage employees suffers this consequence of the business cycle. The consequence is not just a revolving door of employees, but real costs that range from $3,500 to $7,500 per employee. Over the years, lots of solutions to the problem of turnover have been recommended; most of them focused on improving the quality of the employee experience.
While a positive employee experience is absolutely necessary, another solution is to have a hiring strategy that identifies employees who are less likely to quit in the first place.
While both approaches can work, few of them are supported by data that make them a “must do” for employers. Our company has been involved in creating both kinds of solutions for many years and, from time to time, we like to pause and share the evidence. In this article, we provide strong evidence supporting the viability of a quality hiring process.
A Quality Hire
A quality hire is an employee who (1) performs their job, (2) fits with the organization’s culture, and (3) sticks around. The purpose of any company’s hiring process should be to identify quality hires. This means including the right tools – such as hiring assessments and structured interviews – to accurately assess candidates’ abilities. Now, the question is whether disciplined use of these hiring tools is worth the effort; in short, do they make an important difference in one or more of the three parts of a quality hire? The answer requires that we dive a little deeper into the nature of the difference between employees hired using a disciplined hiring process and those that are not. Important differences would be expected not only in employee turnover, but other relevant outcomes such as financial results and employee attitudes.
One study compared differences in employee turnover and select financial results for units that followed the hiring process most of the time to those that did not. The table below shows the difference between high and low compliant units.
The results shown above are for 600 units of a national restaurant chain. We had data on how compliant the management of each unit was with respect to following the hiring procedures. We measured compliance as percent of total staff that was hired using the procedures and selected 85% compliant as the cutoff between the compliant and non-compliant group. What the data shows is that using a well-designed hiring process pays, as turnover was significantly lower and financial results were significantly stronger in the compliant group, giving proof to the cliché that employees are your most important asset. In the current turn of the business cycle, such results are money in the bank. Discipline matters.
We were also interested in the effects of a disciplined hiring process on cultural outcomes such as employee theft, honesty, and use of offensive language. We had data from the restaurants that measured employee attitudes toward theft and honesty as well as employee perceptions of the prevalence of offensive language. The following table shows the effect of hiring procedures on these important cultural outcomes.
Recall that culture fit is one aspect of a quality hire along with performance and retention. These results are strong support for the effect of a disciplined hiring process on the nature of an enterprise’s environment. In a very real sense, scientifically designed hiring procedures amount to a recipe for ensuring that a company makes quality hires. In this light and view of the ongoing shift in the business cycle, why would a company choose to use a bad recipe?