Who Tracks Quality of Recruitment in Your Company?

According to research by US firm Manchester Partners, 40% of executive hires fail in the first 18 months.

I have to say my experience puts the figure closer to 50% but it is still a staggering proportion. Recruitment costs vary but if you took a rough average of 30% of the executive's first year salary you would not be far out. Then multiply it by the remuneration you have wasted on a poor recruitment decision over the 18 months and you will start to understand why bad recruitment is costly. Then add on the opportunity loss for not finding the right hire in terms of the profit not obtained because the hire failed to achieve finding it, suddenly you get an inkling of the true cost to the business in both cost and missed profit opportunity.

Accountability for Poor Hiring

Going back to my article on responsibility vs accountability, is there a person in your company or organisation who is specifically accountable for making poor hiring decisions? I am sure there is not. The last CFO at Lehmans took the blame for the company's massive losses - incredibly she had only been in the role for 6 months. Why was the person who made the appointment similarly not fired?

The fact is that there are few executives who are held accountable for poor hiring decisions - and therefore the same mistakes will be repeated, year after year. The same staggering costs will be associated with the poor decisions and the loss of opportunity will drag on the profit performance.

The cost of bad recruitment is one of the largest underlying drags on corporate profitability and it continues every year while executives are not held accountable for their poor hiring decisions.

I have written a free downloadable document on the subject, I hope it will illustrate the issue more clearly.

Where Does the Fault Lie?

It would be convenient to blame recruiters for the whole problem. After all, beyond a period of 3 months they usually have zero accountability for poor hires. Given most executives are on an initial guarantee and given it would be an amazingly poor hire that gets found out in 3 months or less, the recruiters are virtually guaranteed their money once the candidate starts work. They have zero incentive to help the client or candidate succeed - in fact it may pay to see the candidate fired after say 6-12 months as they more than likely will get engaged to replace the hire. That's 30% on average of the first year remuneration for a few actual days of work and a couple of meals maybe. Contingent or retained, neither have skin in the game to work long term with clients in a real sense, they see recruitment as filling slots in the main and pretty much easy money.

But recruiters are not all the problem. HR Depts are looking to drive down costs in the face of poor recruiting and so they exacerbate the problem. Larger companies even outsource the whole shebang, abdicating even the responsibility for recruitment let alone accountability - just to hit the cost line. Reverse auctions and outsourcing are becoming rife in the industry - I mean, how can an Eastern European based call centre add value to the recruitment process? Am I really missing something here?

Then there are the hiring executives. Under pressure to hit targets and manage their staff, they hardly have the bandwidth to do a good job on recruiting - they need to offload the issue as much as they can. Again they are happy to abdicate the accountability to some other area, yet the new hires will be crucial to their future performance - why would you take that chance?

So much of modern day recruiting is about vast quantities of cheap advertising and jon boards to generate quantities of CVs and then match as many words as possible to produce enough warm bodies to statistically satisfy the requirements. It is a numbers game - throw enough manure at the wall and at least some will stick.

In general, the quality of hiring is fast becoming a process-driven, box ticking exercise which no one is really accountable for in the true sense. It is small wonder why such a huge percentage of executives fail within 18 months in such an environment.

Turning The Tide

As we enter more uncertain and recessionary times, costs to the business come under the magnifying glass and the cost of bad recruitment becomes an even bigger issue in times of less profitability. Recruitment processes and techniques become far more important to companies in such times.

When you think about it, if an executive is recruited and lasts say 5 years in the role but cost 100% of the first year salary to recruit, then most CEOs would cough at the cost but take the equation given the extra time they had the executive performing to plan or better - with all that incremental profit gained over a poor executive lasting only 18 months. The actual cost of recruitment then is not really the issue - it is simply the quality.

Quality is derived from thought and planning. It is absolutely pointless starting a recruitment process after headcount is signed off as there is minimum lag of 3 months required to find a candidate, which means the impact on performance in any given 12 months is at best 9 months but more realistically 6 months given ramp up time. Recruitment planning should be done BEFORE the headcount is signed off.

Recruitment viewed as slot or headcount filling will inevitably lead to a high proportion of poor hires as managers hit time constraints to get people onboard and therefore take second best or worse still compromise too far on requirements vs candidates returned. Contingent recruiting where the recruiter is engaged only when the headcount is signed off offers little value to organisations in my opinion and certainly does not justify he very high fees associated with it. Fully retained recruiters have absolutely no incentive to find the right fit - there is little accountability on guaranteed, non-committal advice so expensively given.

In reality recruitment should be viewed as a constant process because it is the company's investment in the ability to attain its future goals.

A Novel Approach

I am not a recruiter but as part of my engagement with clients expanding internationally I do find them exceptional talent to man their subsidiaries. Just like any other part of my business and services it is performance-related and is all about results - anything less is of no value to my clients. So while I may take retention fees for my time invested with my client, my upside is all earned on the performance of their international business. If I find and place a candidate for a client, I am paid my upside in direct proportion to that candidate's performance in the role against pre-agreed targets over a pre-agreed time. It is my skin in the game and it is all about results and accountability.

I think it is time executives were penalised for bad hiring decisions, I think HR should be incentivised not on fill rates and driving down fees but increasing quality while CEOs should have full visibility on the actual cost of bad hires and have it as a constantly reviewed metric in their business.

As we approach tougher times, there is an urgency to get this right. I do not have all the answers but I would stand accountable alongside any client if I had contributed to poor hiring decisions, so I challenge any hiring executive to try my services and I will help them put money straight back on their bottom line. I am really looking forward to your calls.

Tel: +44 207 193 2356
email: nigel.dunn@calxeurope.com
web: www.calxeurope.com