We're glad to provide you this quarter's edition of the milewalk Insight. We offer this free newsletter to the human resources community and hiring officials to help you attract the top talent and improve your company's ability to motivate your employees.

For this issue, our chief executive Andrew LaCivita prepared two feature articles. The first focuses on a critical employee management principle that keeps company morale high and typically leads to additional revenue for your organization. The second looks at simple techniques you can implement to better evaluate your quality of hire and motivate your recruiting resources. Please read on as some of the information may surprise you.
 


 
In an environment of reduced workforces and overworked employees, companies face significant challenges keeping their staff motivated. This is a special concern as it relates to top performers. Employers simply cannot afford to lose them. To address these issues, many leading companies are transforming themselves into "Pay for Performance” organizations. The concept may be simple - put compensation structures in place that align the goals of the individual with the goals of the organization and allow the best performers to achieve rewards through great performance. The execution is not.

In the late 1990s and early 2000s, the corporate paradigm was very customer-centric, deploying strategies and tools that promoted Customer Relationship Management tactics. Companies were primarily concerned with keeping existing customers and securing new ones. Now, that paradigm is shifting inward toward the employees. Companies realize they can reduce turnover of key personnel and, as a result, increase revenue by truly rewarding top performers.

These compensation structures are not only for executives with "Management by Objective” programs. The truly effective organizations offer these programs to all employees. Quite simply, that is the key to successfully transforming your organization.

Transform to a Pay for Performance Organization
Transforming into a Pay for Performance organization requires significant effort in creating awareness, promoting the desired culture, and aligning the compensation structure. These efforts occur serially and all contribute to your ability to maximize benefits.

  • Awareness – To create awareness, the leadership team must be committed. Without this commitment, any initiative is futile. The leadership must also ensure that employees understand the corporate goals and how their individual objectives map to those corporate goals. This involves clarifying how each individual's contribution helps the corporation achieve its objectives.
     
  • Culture – To promote a pay for performance culture, organizations should inform employees that major contributors will receive significantly more awards and compensation. At this point, it is critical to educate the employee base that your organization is changing to this model. This will help facilitate the shift in culture. This is also an excellent time to begin implementing enterprise-wide performance management processes.
     
  • Alignment - Aligning the compensation plans is where the rubber hits the road. This stage involves implementing the new compensation strategy and aligning the compensation plans to the individuals. It is extremely important that the goals of the individual are in line with the goals of the organization. This is also the time to implement the information technology tools to support the compensation plans and payouts.

Once you complete these critical stages, you will begin noticing some of the most common characteristics of pay for performance organizations including alignment of individual performance and pay to corporate objectives, employee behavior that maximizes revenue, a flexible operating environment that allows quick reaction to market changes, and an organization designed for growth.

Realize Benefits by Optimizing Processes and Technology
Compensation plan alignment and streamlined business processes are critical components in achieving the pay for performance culture. Another key ingredient is the information technology environment required to support compensation management.

There are a handful of best-of-breed and enterprise application software products that effectively handle compensation management. (You can even outsource this function.) All of these products must be integrated with other systems that provide or receive critical data (e.g., Human Resources, Enterprise Resource Planning, Sales Force, Billing, and Payroll Systems). It is imperative that these systems and the data used to operate them are correct. After all, accurate and timely payouts of these rewards ultimately show the finished product of a Pay for Performance organization.


 
Recruiting has become more and more difficult for human resource officials and internal recruiters. One of the major contributors is that organizations get in their own way by limiting the marketing and sourcing techniques their recruiting departments can use. Many companies feel they will get quality candidates by simply placing a job posting on their corporate website or searching the Monster's and Hotjobs' of the Internet. To further exacerbate this issue, hiring officials often complain or don't cooperate with the recruiters who are trying to fill their openings.

What can HR and Recruiting departments do to become more effective and improve the quality of hire so hiring officials are more satisfied (and engaged) and their company not only finds but attracts the top talent? Let's look at some interesting findings before we address some helpful techniques.

AIRS recently conducted a survey of 72 companies across 20 industries (AIRS Quality of Hire Metrics Survey 2004) to determine how organizations determine their quality of hire. Below is a list of five key findings:

  1. Most companies measure their recruiting function, but do not measure quality of hire. (83% measured the function. 42% measured the quality.)
     
  2. The number one quality of hire metric used was attrition rate. (Likely because the data is easily identifiable.)
     
  3. The majority of recruiters aren't paid to hire quality candidates. (For 81%, their compensation does not depend on it.)
     
  4. Quality of hire metrics don't drive recruiting performance in the majority of organizations that measure them. (Only 44% of respondents indicated it did.)
     
  5. These metrics are reviewed by executive and HR leadership. (60% review these statistics. To confirm, most organization review them, but few organizations compensate on them!)

The survey discovered that the most common quality of hire metrics are:

  • Attrition rate
  • Hiring manager survey results
  • New hire job performance rating
  • New hire scores on mandatory training
  • Length of time required for new hires to meet minimum output standards

From these statistics, we can conclude that few companies effectively measure the quality of their hires and those that do use blunt instruments.

How can your organization improve the quality of its hires? How can you motivate your recruiters? Certainly we must be reasonable if your organization is starting from scratch. Even so, it's important that we watch the metrics and (as the Pay for Performance article above indicates) compensate our recruiters accordingly.

As a first step to improving the quality of your hires, you must collect the metrics. Be reasonable, but collect them. There are three tools that will make the difference. These are listed below. The key driver is knowing this information will be collected and measured and that people will be managed and compensated by the results.

  • Hiring Manager Survey
  • Attrition Rate (first year)
  • Performance (Marco level)

Hiring Manager Survey – Make sure the hiring managers fill these out for each recruiter. Some of the core metrics that should be captured in the survey are new hire quality, actual vs. contracted time-to-start, customer satisfaction, and efficiency. (Please note that the actual vs. contracted time-to-start is different than time-to-fill. Time-to-fill is how long it takes to find the new employee. This isn't necessarily the key metric in improving hiring official satisfaction or improving the quality of your hires. The more telling indicator is the variance between the time the recruiter indicated it would take to find the individual and the actual amount of time it took.)

Attrition Rate – How many of your employees left within the first year.

Performance – Have the hiring official rate the new employee at 90 & 180 days. Aggregate the performance for all employees the recruiter hired.

These tools may seem simple. Few companies, however, succeed in gathering this data and fewer still compensate their recruiters on it. Taking steps to evaluate the quality of hires and improve hiring official satisfaction will go a long way to improving your company's ability to hire top talent. Getting the hiring officials to want to be more actively engaged will really make the difference.

 


About the Author

Andrew LaCivita is the chief executive of milewalk, an executive recruiting and human capital consulting company located in Chicago, IL. He has consulted for over 60 companies throughout his career and publishes this free newsletter to the human resources community in hopes it will help you attract the top talent and improve your ability to motivate your employees. After all, as Jim Collins indicates in Good to Great…people aren't your greatest asset, the right people are. For a more complete biography, please visit the milewalk website.

 
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