Other People’s Money: The Truth About The Cost Of Hiring

“What constitutes a successful hire?” is a question that interests both recruiters and managers while the question “How much does it cost?” is the one that plagues managers and their managers. I was a “special guest” at a seminar run by my former colleague Ms. Nirit Hadar who was addressing the overall hiring process and this specific aspect therein. I’m sure at least three answers spring to mind as you’re reading- hiring someone who suits the role, hiring someone who fits the company and hiring someone who stays with the company “long-term.” Some of the more sophisticated answers offered by the seminar participants were cost of hire and time to hire, both of which need to be low in order to constitute a successful hire.

The latter suppositions are indeed accurate, and should be key performance indicators on which we evaluate our recruiters, however, these answers- and those preceding them- typify individuals who are too far removed from an overview of the business entity to understand that all the above are actually subsets of the one correct answer: ROI.

Return On Investment was The buzzword in the last decade, used to excess and then discarded. However, its exactitude in answering this question is absolute. I shared with the seminar participants that, as an owner of a profit and loss, business unit and bottom line results, what determines if a hire has been successful is whether I am able to say no to the following question: Did I invest more into acquiring this resource than the output it delivered for me?

“Investment,” in this case, spans three main areas. The first is money- how much money did I spend on the hire? This is a quick and dirty, easy calculation of agency fees, job board fees, referral rewards and the like. The second is time which is actually, as the adage states, money but separated here because of the challenge in precisely quantifying it. Within “time,” various factors should be examined including: How much time did I spend on this hire? How much of other people’s time (read: money) was spent on this hire? How much time did it take to fill this position? If I’ve been looking for 6 months, that might mean the work included in the job description wasn’t get done or wasn’t getting done properly which is detrimental to the overall productivity (read: profitability) of the firm.

The aforementioned two elements- time and money- can be estimated and calculated prior to the hire but the third encompasses post-hire costs which are also integral to understanding the truth about the costs of hiring. This third component centers around the new hire’s contribution and productivity. Did s/he improve or detract from the work environment (read: productivity) and how quickly (read: time, read: money) did it take? Did s/he encourage others to work harder, better, smarter or incite dissent and discontent? Was s/he able to do the work with minimal coaching, supervision, guidance or did the firm need to invest time (read: money, again) in hand-holding and a long learning curve? Did we discover, after bringing him/her in, that we did not need this function? Did we invest more time/money only to lose this individual before their output outweighed our input?

And the ROI doesn’t end when an employee’s lifecycle does. Employees contribute to a company even after they leave. If the parting is amicable, the firm’s reputation will be enhanced; if it was acrimonious, then it’s likely to have been detrimental to the work environment and company reputation. Severance pay is also a factor and it’s the one which rankles me.

As someone who has been part of management for almost my entire career, I can empathize with the “other side” in a limited way, for the following reasons. Most employees who are leaving the firm are focused only on themselves- seeking to extort as much financial gain as possible, be it earned or not- and totally disregard the welfare of the individuals they are leaving behind as well as the health of the company which continues to provide for those individuals.

Furthermore, even in today’s difficult economic times, leavers often have another job before giving notice so they have an assured future income and are merrily on their way; given their situation, focus on draining every penny from their soon-to-be-former employer seems excessive and unnecessary. Their self-centered perspective means they take away money which is not rightfully theirs and that could/would have been invested into the remaining employees and the company, to make everyone more successful and happy. Exiting employees need to understand that they cannot be an “exception” because once an exception is made, a precedent is set and the company will struggle to justify not repeating their actions. Thankfully, my faith is restored by those employees who have earned their severance package/exit terms in full and by those who go about getting fair settlements without defamation or scapegoating.

So now that we have the three elements to ascertain ROI on a hire, who should be answerable for it?

Well, recruiters- on all levels- need and are able to manage the monetary and time factors correctly, meaning achieving whatever is optimal for the particular role and firm with the weight of each component varying per position and company. An additional factor for which recruiters should be held responsible is the new hire integration period which is part of the third element. The benchmark for a new hire integration period to which I’ve been held and to which I now subscribe is six months for senior-level individuals and three months for others. If the new hire leaves (voluntarily or not) within these time frames, then the recruiter has failed and worse, there is almost no possibility of having achieved ROI.

Exceptions do occur. In some countries, France, for example, the penalties of terminating an employee after their probation make cutting one’s losses early an appealing and cost-prudent option. Another exception can occur when an individual introduces the firm to valuable contacts with which the company is able to nurture relationships thereafter. However, because of the intricacies and expenses associated with hiring, only an individual with a company-wide spectrum can be held accountable for the third element in its entirety and therefore, for ensuring ROI is attained.

So “What constitutes a successful hire?” and “How much does it cost?” are actually the same question. And the answer is that a successful hire is one where the newcomer’s output exceeded the firm’s input. As is now evident, the spicy ingredients of the ROI dish make hiring one of the most costly and complex processes a firm undertakes. Managers and recruiters alike will benefit from more accurately measuring and weighing the above recipes and then, as they say, the proof is in the pudding.