Stop Measuring Cost Per Hire! Focus on Value of Best Hire
Does your consumer-driven organization view talent, and talent acquisition, as an investment or an expense?
Organizations commonly reference “human capital,” to imply their investment in people, who represent their organizations most “valuable asset.” Yet, when it’s time to build your staffing plan and budget, the message is loud and clear: “human capital” is considered as current expense, not as an asset.
That may be the reality of accounting rules. But, this accepted practice is a HUGE distortion of the reality of the value of talented people in your organization.
Capital investments in plants and equipment consider return on investment over time. Factoring in both costs and return, you maximize value. And although the term “human capital” is becoming outdated, it is a mistake not to measure the return on your investment in people the same way. When you do, the fundamental hiring decision shifts from: “How much will this cost?” to “Who will deliver the best long-term value for the money spent?”
Viewing recruiting expenses as “costs” adversely influences thinking and behavior.
When organizations view a talented professional as an expense on the P&L instead of as an asset on the balance sheet, they tend to treat people, and the talent they contribute to their business, both as a commodity and as a cost.
If you measure cost but not quality of hire, then you have de facto prioritized cost as more important than quality. You are attempting to increase your value per hire by decreasing cost per hire, not by increasing quality and contribution per hire. That is a losing strategy.
Measuring cost per hire is appealing, because it is easy to do immediately and objectively; it is easy to control; and it seduces everyone into thinking they are doing something positive by saving money. However, concentrating solely on keeping costs down can lead to bad hiring decisions, which in turn can be extremely costly, both in terms of turnover and poor corporate performance.
What you measure drives behavior.
“What gets measured gets done.” This principle has certainly stood the test of time and continues to prove itself daily.
- If you measure cost per hire, people focus on cost per hire.
If you compensate people on cost per hire metrics, they REALLY focus on it.
If you don’t measure value per hire, people don’t focus on it.
Instead, measure value per hire over time to reveal the return on investment of recruiting activities. It’s a way to evaluate the effectiveness of your company’s recruiting program and your recruiting partners. It can demonstrate the worth of your recruiting efforts to other decision makers in your organization.
Value per hire over time requires managerial courage.
It requires holding people accountable, both the new hire for contributing, and the recruiting team for identifying and attracting top contributors. But, the payoff for hiring well is substantial.
When you are making the business case to invest in the strategic hire of a professional with the talent to contribute to your bottom line, contact O’Connell Group recruiters. We can help you measure – and realize – the value of the right hire over time.