Use Win-Win Hiring to Cut the Hidden Cost of Bad Hiring Decisions in Half

I was just finishing up the 4th edition of Hire with Your Head (Wiley, Q3 2021) when a call came in from a talent leader asking about the cost for training her 30-35 hiring managers to implement Performance-based Hiring at her company.

Before getting into this though she asked what was Win-Win Hiring since she had heard this was going to be the emphasis of the book and the training. I told her a Win-Win Hiring outcome is based on measuring hiring success on the first year anniversary date rather than the start date. This means the new hire is still fully satisfied with the job after one year and the hiring manager agrees the person continues to do outstanding work.

Just as important we make an implied guarantee that this goal is achievable if both the hiring manager and the candidate agree to balance the short-term compensation package with the work itself and the career opportunity it represents before an offer is extended. This Win-Win Hiring approach is illustrated in the headline graphic of this post. Achieving it starts by asking the candidate to prioritize the six criteria in the graphic by order of importance with the company agreeing to provide all of the information needed for the candidate to make a fully-informed and balanced decision. When comparing offers this way, for most candidates the starting compensation is always less important than the work itself and the career opportunity the job represents.

She thought this was a good idea but when we got to the part about the implementation program she said she'd have to wait a few months since she didn't have any budget for training. Based I this, I asked her this question:

What was her company’s budget for bad hires? 

Then a long pause with an admission that she didn't have one and didn't have a clue what it even meant. Then I showed her the graphic below and suggested that getting a rough estimate of the cost of bad hiring decisions was easy to calculate. All you have to do is multiply the percent of people who are underperforming or who have already left during the first year by the company’s total annual increase in payroll costs for all new hires.

For example, to calculate the Bad Hiring Rate just add the actual turnover rate to the percent of people who are still there but you wouldn’t rehire given another chance. She said this total was about 20%. To get an estimate of annual payroll expense multiply the number of people hired in the year by $100 thousand. This is a very conservative estimate of the average total payroll expense per person for non-hourly admin, professional and managerial staff.

Given this, she said they hired about 100 people in the past 12 months which equates to $10 million in additional annual payroll. This is equivalent to an unbudgeted waste of $2 million every year for bad hiring decisions – 20% of $10 million! That got her attention.

This is still a conservative estimate since it does not reflect the benefit of hiring the right person nor the chaos caused by hiring the wrong person. But as a starting point it’s a good floor to use to determine the companywide impact of bad hiring decisions.

Then she asked for a quick summary of how Performance-based Hiring can achieve more positive Win-Win Hiring outcomes. Following is the short quick summary. (Here's the longer one.)

• Define success as a series of 6-8 key performance objectives (KPOs) rather than a list of skills by asking the hiring manager what does the person need to do during the first year to be considered an outstanding performer. For example, "Upgrade the companywide analytics dashboard to be mobile-ready by year-end," and "Meet with the user group during the first 30 days to figure out what critical data is needed," is a lot better than something like, "Must have 5+ years experience with Fivetran/Stitch, dbt, Snowflake, or Looker."
• Have candidates prepare half-page write-ups of their accomplishments most comparable to the 2-3 most important KPOs listed.
• Ask the hiring manager to review these write-ups at the beginning of the initial phone screen.
• If the candidate seems strong based on this review, describe the career ladder and the opportunity the role represents and ask if the candidate is interested in being considered for the job. Then explain the Win-Win Hiring idea and give the person a copy of the Career vs Jobs graphic at the top of this post. As part of this have the person quickly rank order the six factors shown in order of importance and ask why they were ranked that way.
• If everything seems logical invite the person for another round of more in-depth interviewing.

She agreed that increasing the likelihood of a Win-Win Hiring outcome this way will cut her company's unbudgeted cost of bad hiring at least by half. She also realized that by having her hiring managers define the work as a series of performance objectives they'd be able to attract a broader pool of more diverse candidates. Then she went wild about having candidates write up their comparable accomplishments and having her hiring managers review these first in a phone screen since this would reduce bias and increase assessment accuracy. She then said she get the budget for the training approved.

Hiring the strongest talent isn't hard. It is different though. But in the process of being different you'll be able to cut your company's unbudgeted cost of bad hiring decisions in half.