Should the Recruiting Department Be Charged with Financial Malfeasance?

Earlier this year I presented a financial model that demonstrated that on average, hiring a C+ person instead of a B+ person costs a company somewhere between 50 and 100% of the person’s annual compensation. This becomes a huge waste of resources if you do this more than once. For example, if you’re hiring just one $60,000 C+ person instead of a B+ person, the net loss is $30,000-60,000 per year. If you’re hiring 1,000 people and a third of them are ranked C+, collectively they’re costing your company $10 million-$20 million in pre-tax profit each year. You don’t have to be a financial analyst to suggest that your CFO and CEO might be interested in this level of recruiting and hiring malfeasance, as well as your stockholders, among others.

Now to make matters worse.

At the ERE 2010 Spring Expo in San Diego I contended that we were in for a near-term hiring tsunami of major proportions, forcing companies to hire the C+ in droves. As the recovery accelerates, new hiring needs, an increase in voluntary turnover, and sideliners rejoining the labor pool will start a mad scramble to fill seats with anyone who looks like C+ person, much less a B+. In the national employment report issued on May 7th two-thirds of this tsunami forecast came true. The other third will become apparent in the next few months. It will cost your company even more mega-bucks if you fall into the trap now being set.

Practically speaking, there might not be much you can do about it, since most companies have mistakenly set up their hiring process to only hire C+ level people. In fact, in doing this they’ve also set up their processes to prevent the B+ from even entering the building, other than through the back door. Of course, your company was not so naïve. You knew the last few years were aberrations. You knew that anyone could hire above-average talent in a below-average economy, especially when the supply of talent exceeds demand. But things are different now.

Q1, 2010 was a tipping point. The excess of supply of talent will quickly reverse course, and finding enough B+ level people to fill your new jobs will be much more difficult. Worse, replacing a B+ person who voluntarily leaves for something better with someone of equal caliber will be near impossible.

To put some foundation to this over-the-top scenario, let me offer this definition of a B+ person: technically qualified, consistently delivers high quality results, can overcome most obstacles without making excuses, will take on tough projects, can work 24/7 in spurts, can deal effectively with all types of people inside and outside the company and the department, often takes the lead when problems occur, self-motivated, and doesn’t need a lot of direction. Add, if the person is a manager, a B+ managers hires only B+ or better. This is a great person. Imagine the cost of losing one, or not hiring one for each position in your company.

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Now consider the criteria these B+, or better people use to compare opportunities and select which one to accept. It probably consists of these factors, but feel free to edit the list based on your company’s experience and the jobs you actually fill:

Selection Criteria of Top People (B+ and Better)

  1. Growth opportunities — the job offers a chance to progress rapidly, assuming successful performance.
  2. Job content and satisfaction — doing work they like to do.
  3. Job stretch — taking on a bigger job rather than a lateral transfer.
  4. Company-related factors — financial stability, brand, image, culture, and industry.
  5. Work/life balance — a career opportunity coupled with a chance to have a somewhat normal life outside of the office.
  6. Compensation and benefit package — while it doesn’t have to be the best, it must be competitive.
  7. Hiring manager and the team — the hiring manager is a true leader who is going places and is a possible mentor. The team is professional and top notch.
  8. Location — convenient if possible, but most places would be considered if the job offered a career move of singular opportunity. (Note: this must be only be discussed in the context of a very slow approach to evaluating multiple opportunities within the company).

Now, I’d like to prove my contention that most companies are not targeting these people. Instead they target the how the C+ level person looks for another job and selects one over the other. In the process this approach precludes the B+ from consideration. To gain a sense of this, just answer the following questions about your companies’ hiring and recruiting processes.

  1. Do your job postings clearly define career moves or lateral transfers? If you emphasize skills and experience in your job descriptions, rather than learning and growth opportunities, you’re targeting the C+ person. This is the person who’s looking for a lateral transfer.
  2. Do you have formal processes in place that allow the B+ person to engage with your company without having to apply? If you do, does it work? This means you identify who they are, and that you track your conversion rates.
  3. Are all of your hiring managers open to conduct 30-minute “career discussions” with strong people who aren’t totally excited about working at your company and who meet fewer of the requirements listed on the job description? As the economy recovers, the best people will be reluctant to apply unless they have a chance to view your opening as a clear career opportunity, without having to make any commitments.
  4. Is it easy for the B+ person to obtain all of the career-oriented selection criteria defined above? This is what they’ll use to compare different opportunities, and if you don’t formally give it to them, you’ll unnecessarily lose many of the best.
  5. Do all your hiring managers, including those in the bottom half, know how to recruit and attract top performers? It’s hard for any manager to consistently hire B+ level talent without working hard at it. With the rush to fill positions, formal “raising the talent bar” programs can offset some of this move toward mediocrity.
  6. Do you have enough people every B+ candidate meets who are part of your B+ career track program? Most companies have a high-potential program to ensure their top 5% get managed, promoted, and rewarded effectively, but few carry this through to the top 20-25% of their workforce. If you can’t prove you offer a career track, it will be difficult convincing the B+ candidates your career story is credible.
  7. Do you have a top-down driven hiring strategy or bottoms-up? A bottoms-up strategy is top-candidate focused, aka customer-driven, designed to meet their needs at each step in their job hunting and decision-making process. Unfortunately, most companies have inadvertently and naively assigned this critical role to their ATS vendor and RPO in combination with their comp, legal, OD, and IT departments. For just one example, are your job postings uniformly manufactured by the ATS to meet legal needs or designed to appeal to the intrinsic motivators of a top person? To offset this poorly designed top-down process, a bunch of costly workarounds and special programs are required to minimize the disaster they cause.

While a few companies have effectively resisted the push to confirm to increased bureaucracy, most haven’t. They still use some mash-up of ill-conceived hiring ideas designed by the wrong people to hire the most available person, not the best person. The business and financial cost of this misguided process is far greater than the short-term satisfaction of getting a position filled on time, but somehow this impact is hidden from view. Just sum the total compensation of the C+ people in your company to gain a sense of how much this is costing your company every years. Maybe put it on chart and track this to measure your company’s overall hiring performance. So whether you want to track the cost of hiring a C+ rather than a B+, or not, it’s time to grab hold of your wallet. If you don’t, before you know it will be empty.

Lou Adler is the CEO and founder of The Adler Group – a training and search firm helping companies implement Performance-based Hiring℠. Adler is the author of the Amazon top-10 best-seller, Hire With Your Head (John Wiley & Sons, 3rd Edition, 2007). His most recent book has just been published, The Essential Guide for Hiring & Getting Hired (Workbench, 2013). He is also the author of the award-winning Nightingale-Conant audio program, Talent Rules! Using Performance-based Hiring to Build Great Teams (2007).

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5 Comments on “Should the Recruiting Department Be Charged with Financial Malfeasance?

  1. As always Lou, your passion for recruiting “A” players comes across loud and clear.

    While it is true that a recruitment process for hiring “C” players is ineffective in hiring “A” players; at the end of the day, it is the employer who is picking up the tab for hiring employees. The handwriting is on the wall, employers will continue to recruit whichever way that make sense to them and hire whomever they want to hire.

    It might be in our best interest, as “A” player recruiters, to be more reactive to the handwriting on the wall and look for more creative ways to get compensation for the work we do. i.e. getting paid by the “A” player candidates since THEY recognize the work we do is valuable.

  2. Lou, GREAT article – maybe the best one recently in ERE. Lots of ramifications if you really think about it.

    The adoption of the VMS model by many large companies has all but guaranteed they won’t get A (or even B+) players based on the criteria you listed. I have witnessed this firsthand at many of my larger customers. While these companies want/demand A players, they are recruiting with C and D methods at best. That doesn’t work. One word comes to mind when VMS are measured against your criteria – FAIL.

    What is the long term ramification of hiring C players by previously great companies? I firmly believe a strict VMS model will ultimately result in a mediocre staff. Hard to remain a leader with mediocre staff. Any system that discourages actual communication between the people that source candidates and the people that hire them is doomed to mediocrity. It seems so obvious if you really think about it. Yes, the company will get people that sort of match the ‘canned’ job description, but it will be a miracle if they are the best possible person.

  3. Lou – Your selection criteria and recommendations for C+ versus B+ hiring are outstanding. They are clear, logical, and easy to implement. While the degree of financial impact might be argued one way or the other, there isn’t a doubt that the earnest career seeker (versus “job” seeker) would benefit greatly from your recommendations. Hence, the employer would as well. Unfortunately you lost me on the introductory material which predicts an urgent need for its immediate implementation due to “a near-term hiring tsunami of major proportions, forcing companies to hire the C+ in droves. “

    Can I ask upon what data the contention of this “tsunami” was built? The Bureau of Labor and Statistics (BLS) makes turnover look more like a pond ripple than a tsunami to me. The May 11, 2010 Job Openings and Labor Turnover Survey (JOLTS) concludes:

    “Total separations includes quits (voluntary separations), layoffs and discharges (involuntary separations), and other separations (including retirements). The total separations, or turnover, rate was unchanged in March for total nonfarm and remained low at 3.1 percent. The rate was also unchanged over the month for total private and government. The total separations rate (not seasonally adjusted) decreased over the 12 months ending in March for total nonfarm and total private, while the rate for government increased.” Furthermore, the same report says, “The hires rate was little changed in March at 3.3 percent. The rate has remained between 3.0 percent and 3.3 percent since September 2008.”

    I also don’t understand how the Jobs Report is related to turnover, much less how it can account for “two-thirds of this tsunami forecast [coming] true”. This number only shows the creation of new jobs, not the rate at which an employer gains and loses employees (turnover). By the way, the link takes you to John Zappe’s article about the report, not the report itself.

  4. Lou,

    Clear, concise and to the point. This should be a must read for every company in business.

    1. I do not believe you can consistently find “A” and “B” players by posting jobs on job boards or through social networking. The top people in industry, at least in my experience, have minimal internet presence and are too busy performing to be looking at job postings, etc.

    2. Most companies do not have a well defined hiring process. They haven’t felt the need to develop a better process when they have become content with low hanging fruit The majority of hiring managers have abdicated their role in the hiring process to human resources people, who typically screen people based upon a set of criteria.

    3. Most companies do not know how to sell their opportunity.

    4. The bottom half of all hiring managers would feel threatened by a “B” player and would not want to hire that individual as an act of self preservation (job security).

    5. Most companies have a slot filling mindset. They want to find people who confirm to their job specification and nail the lid shut when that box is filled. Any approach other than slot filling would require confident, secure individuals who think outside the box and would be creative and innovative in attracting and retaining “A” and “B” players.

    We have our hands full as proponents of change. There needs to be a massive educational process that occurs with willing participants in order to have your selection criteria adopted.

  5. Maybe you want to hire all B+ candidates, but who says all jobs are B+ jobs? I have contended for years that the real challenge is not hiring the best candidate, but hiring the RIGHT candidate. And they are not always the same.

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