Measuring the overall effectiveness of your talent acquisition strategy can be challenging at best. There are so many metrics to keep track of, and many aren’t exactly useful.
Here’s a simple metric that we adopted from marketing: total talent acquisition spend dividedtotal new salary added. This ratio is a great way to understand what you’re spending vs what you’re getting in value (approximated by the salaries that you’re spending on new hires).
For more detail, check out this video.
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Great Whiteboard Phil. How can you best extrapolate out the value that each employee brings w/o be subjective?
The simplest way is to believe in “efficient markets” and assume that each employee’s value is a 2-3x multiple of their all in annual comp. By “efficient markets,” I mean that if an employee’s “value” is $500k, then they can probably be expected to get paid $150k, and if their value goes up, they would be expect to get paid more (of course there are many inefficiencies in our world that make this not true and lead to people getting over/underpaid).
Of course, you can think deeper about each role in your company and the value they bring (maybe sales is 10x, and engineering is 2x, or vice versa). But, I’d just keep it simple and say 2-3x annual comp.
Interesting approach – thanks! It will be interesting to see if people are able to change the conversation around cost per hire to one that is focused on cost to value ratios.
I have to disagree with this comparison. It’s missing the real value of the new employee. Just because an employee gets paid $100k doesn’t mean that’s their value. That is only the market rate for what that specific title pays in a geographic area. In order to calculate ROI, you have to figure out what the tangible contribution of the employee actually was. For instance if you paid an process engineer in a plastics manufacturing plant $100k, and it cost you a $25k recruiting fee, but the engineer reduced scrap and increased efficiencies resulting in an $800k cost savings then your ROI on the hire was nearly 8 to 1.
Yup completely agree! However, I try to keep these videos fairly short, and talking through the nuance to understand how to calculate the value of each employee is tough.
Wrongest metric ever. I implore all TA leaders to erase this video from their memory.
Hey Jim – any rationale for your statement?
Phil, tons. Value should always be related to impact. More importantly quantifiable impact. Salary is a “dumb” data point since is not indicative of differentiated performance, but instead is at time wrongly viewed as a predictor of performance.
As you know in a differentiated workforce model, you will have strong KPI’s and revenue or outcome based performance measures, and if you don’t then no metric will ever save you 🙂 So you have to be able to show value in moving the performance/outcome measure. There is not enough space to here and my fat fingers hate typing, to get into the nuances of that, but that’s the basics. If it ain’t about quality, it ain’t a quality metric. Feel free to reach out if you want to discuss further, I’m happy too anytime.
Hey Jim – ok that makes sense and I agree with what (I think) you’re saying. Basically the point of the video was to think about the ratio, and there is definitely a simplification in here with relating value to salary. What I’ve found is that having more than 1 concept/video is too much for most people and so sometimes I make these simplifications :). In an ideal world, we’d have a much more rigorous view of the value someone brings to the table as an employee, which would correlate, but not be the same as a multiple of salary.
Phil, agree, and don’t get me wrong, I love your videos, this one was just off imho. We have greater problem in TA as a whole and that is a poor understanding of data analytics in general, and sometimes when we simplify, it becomes simplistic and the impact is lost, and that can be dangerous for a TA Leader. But, look, you’re batting like .900 on the quality of your posts, and those are beyond HOF numbers so please keep ’em coming.
Thanks Jim I appreciate it 🙂