The so-called Great Resignation has seen record numbers of employees quitting their jobs, forcing many companies into a hiring scramble. When the labor market settles down, employers will need to assess how well these recruits have fared, using a key performance indicator (KPI) known as quality of hire.

It’s a vital piece of stocktaking. Bad hires — people who are hired but end up not working out — are bad for business, and they’re more common than you might think. A recent Robert Half survey found that three in four managers had made a bad hire, resulting in wasted time, lower productivity, depressed staff morale and increased stress.

So much for the why — what about the how? This is where it gets tricky. Quality of hire is a powerful people metric, but it’s harder to deploy than (say) applicants per job opening or hires per source. To help you get to grips with this KPI, let’s look at what it measures and how you can put it to good use.

What is quality of hire?

Quality of hire measures the value a new hire brings to the company. Different organizations define value in different ways, but in all cases, it’s something that contributes to the long-term success of the business.

To understand why this metric matters, imagine a hiring team that’s focused on using traditional recruiting metrics like cost of hire and time to fill. They’re smashing their targets — but then reports start coming in of recent hires performing poorly in their appraisals or leaving after a few months.

As it turns out, those traditional metrics told only half the story — the performance of the talent acquisition team only up to the point where candidates are onboarded. If you really want to know the proportion of new hires that turn into high-value employees, and why, you need to use more comprehensive, longer-term metrics. Enter quality of hire.

How do you measure it?

Quality of hire is a difficult metric to grasp because it appears subjective. How can you put a number on work quality or how someone interacts with other employees? The solution is to first break down quality of hire into metrics that can be quantified. This allows you to develop a framework for collecting data from existing employees and using that baseline information to benchmark new hires. Here’s a rundown on some common measurements:

  • Productivity — You may already have productivity targets — sales quotas, for example, or lines of code written per week. You can also gauge quality by looking at how long it takes new hires to ramp up and start hitting their targets.
  • Tenure — The longer an employee works for a company, the more value they add as their knowledge and experience grow. But bear in mind that tenure can be impacted by factors other than candidate quality, such as sub-par management, a toxic work culture or personal circumstances.
  • Job performance — Because performance reviews can be subjective, consider using data points, such as error rates or how quickly an employee is promoted.
  • Engagement — Do you feel like your hires are highly motivated? Do they align with the organizational culture and build strong relationships? The best way to find out is to survey managers, peers and new hires themselves.

5 tips for improving your quality of hire

While collecting and analyzing these five kinds of data will help you measure quality of hire in your current workforce, it’s only half the battle. To make better hiring decisions going forward, you should also:

  1. Conduct a skills gap analysis High-quality hires are those whose skills align with your needs and business strategy. By identifying any gaps where your workforce’s current skill sets don’t satisfy these objectives, you can focus on recruiting people who can quickly add value and make a difference.
  2. Build a deck of KPI scorecards Different roles may require different quality-of-hire metrics. Some workers add value mainly through their productivity, while for others, final work product quality or legacy knowledge built up over time are a better yardstick. These can also vary by role. Create KPI scorecards for each position in your business, showing which metrics matter most and look for these attributes when recruiting.
  3. Involve hiring managers and employees in the recruiting process The team that you’re hiring for has unique insight into what a vacant or new position should entail. Hiring managers can help screen candidates, while employees with leadership potential can provide feedback on candidate profiles or sit in on a panel interview.
  4. Get your onboarding process right Effective onboarding is critical to helping new hires fit in and become productive as soon as possible. Don’t confuse onboarding with orientation — it’s not a one-off event but a comprehensive process that includes phases like pre-onboarding, day one welcoming, role-specific training and follow-up meetings. Also, remember that onboarding remote employees may look very different than onboarding contract workers Customize your onboarding plans to reflect these contrasting needs and perspectives.
  5. Reassess your candidate screening tools. If people who ace screening tools like skills assessments and job simulations don’t turn into high-value employees, it could be time to overhaul your screening process.

Measuring quality of hire helps companies assess whether their recruits are adding value once they’re on board. Developing a framework may take time, but if the insights you gain lead to better hiring decisions, it won’t be a commitment you regret.