Evaluating Recruiting Effectiveness

Human resources executives most commonly cite their department’s performance in recruiting and retaining employees as the primary factor in how top management evaluates HR’s contribution to the organization.

But despite the importance assigned to recruiting, budgets are stagnant and the systems deployed are often inadequate.

Recruiters are showing the strain. Early-stage recruiting tasks such as sourcing and screening chew up too much time and pull recruiters away from key later-stage tasks such as interviewing and onboarding.

This suboptimal state is reflected in the results of two new studies from BNA and ADP that offer benchmarks for recruiting performance and essential feedback from HR executives and recruiting directors.

Closing the gap between what recruiters have and what recruiters need means building a business case for additional resources. The new data from BNA, a business research and publishing firm based in Arlington, Virginia,
and ADP, a business outsourcing firm in Roseland, New Jersey, helps establish a baseline for current recruiting practices and point to the changes necessary to boost recruiting effectiveness.

Staffing and budgets
In the BNA survey, which covers a broad range of HR metrics, 48 percent of HR executives cite recruiting and retention as the top criterion in C-suite assessments of HR’s overall performance. Partnering to implement key organizational goals, often noted as a high priority for HR, falls in second place, with 39 percent of the HR executives citing this factor as the leading factor for management’s evaluation of HR’s contribution.

The BNA study, conducted annually for more than 20 years, is based on responses from 607 HR executives. Despite the softer economy and lower overall employment growth, 34 percent of HR executives identified recruitment and retention as their top priority for 2008, followed by only 13 percent citing strategic planning and management and 12 percent noting training and development. The importance assigned to recruitment and retention varies little by organizational size or industry sector.

Although the priority placed on recruitment and retention is clear, the BNA study reveals a disjuncture between this priority status and actual practices. For example, HR executives are more likely to plan and measure the results of their compensation and benefits programs than their staffing programs.

Fifty-nine percent reported that they regularly track compensation and benefits, compared with 52 percent who regularly use measurement and planning tools for staffing. In fact, 14 percent reported that they do not use any measurement or planning tools for staffing.

Median HR expenditures increased to $1,082 per employee in 2007, up marginally from $1,056 per worker in 2006, according to the BNA study. Although 54 percent of the surveyed organizations reported that they increased HR expenditures in compensation and 52 percent increased spending for benefits, only 44 percent boosted spending for employment and recruiting in 2007.

The same percentage reported they will increase spending for recruitment in 2008.

Forty-seven percent reported that their budget allocation for recruiting in 2008 will not change, and 9 percent reported that it will decline, the largest percentage reporting a drop in spending for any HR task.

In addition, despite widespread coverage of increased outsourcing, recruiting and related tasks remain largely in-house, including tasks that are not part of core recruiting work. HR departments are most likely to outsource background investigations, but only 27 percent report that they use vendors for this work. Only 23 percent outsource drug testing and only 15 percent outsource pre-employment testing.

Recruiting responsibilities for lower-level positions also remain largely in-house. Responsibilities for non-college recruiting rests solely with HR at 53 percent of employers; 39 percent share the responsibility with other departments; and only 5 percent outsource the task. At companies with 2,500 or more employees, 45 percent give HR sole responsibility for non-college recruiting.

HR handles all college recruiting at 41 percent of employers and shares the responsibility with other departments at an additional 25 percent. Interviewing remains a joint effort, with 87 percent of the organizations reporting that HR and other departments share this responsibility.

HR handles all temporary labor administration at 33 percent of companies, shares it or leaves it to other departments at 48 percent, and outsources the work at only 9 percent of organizations. For large organizations with 2,500 employees or more, 27 percent of HR departments still carry sole responsibility for temporary labor administration.

Demand and pain
The stagnant recruiting budgets and staffing reported in the BNA study do not reflect a decline in recruiting activity. The ADP survey results indicate that recruiting is an ongoing process at the vast majority of organizations.

According to the survey, average annual turnover stands at 16 percent for salaried employees and 34 percent for hourly employees at companies with 5,000 or more employees. Companies with 1,000 to 4,999 employees report turnover of 13 percent for salaried employees and 26 percent for hourly employees.

The ADP study is based on a survey of 537 senior HR executives in charge of recruiting at 175 companies with 100 to 999 employees and 362 companies with 1,000 employees or more. ADP found that recruiters are under the greatest strain at large companies with 5,000 or more employees. These companies employ an average of 10 recruiters to bring in 1,970 new hires a year with an average of 23 applicants per position.

Recruiters report that the early-stage tasks are the most time-consuming. At companies with 1,000 or more employees, finding and matching candidates to requisitions accounts for 15 percent of recruiting staff time. Initial screening, scheduling and interviewing consume another 15 percent, followed by processing, which accounts for 14 percent of recruiters’ time.

A significant percentage of recruiting directors surveyed by ADP are dissatisfied with the tools and the methods used for managing the early stages of the recruiting process, which includes sourcing, screening and tracking. Inefficiencies at this stage are particularly troublesome for organizations with 1,000 or more employees, which screen an average of 23 applicants per position, almost double the average number for companies with fewer than 1,000 employees.

Recruiting directors consistently report that they would prefer to use in-house recruiting staff more effectively by adopting better technology or outsourcing specific recruiting tasks. A sizable majority would prefer to automate or outsource sourcing, applicant tracking, background checks, skills assessment and compliance and reporting.

Building the business case
Although recruiting directors are pushing for more efficient systems, ADP found that only one in 10 midsize companies use an end-to-end system to manage the recruiting process.

“Every employer wants the best candidates,” says Dean Rehfeld, divisional vice president, market and business development for ADP’s pre-employment services. “But for HR executives and recruiting directors, the key questions are: Do they have the tools? Do the tools integrate seamlessly? And can they build the business case to get what they need?”

Building the business case for additional recruiting resources requires a full set of metrics for all the standard measures of recruiting efficiency, including time to hire, the quality of hires, the cost per hire and the cost of a bad hire, where, for example, the screening process was insufficient or a poorly conducted background check failed to reveal a serious potential liability.

“HR executives and recruiting directors should focus on the ROI for recruiting-process improvements,” Rehfeld says. “A key step is to get out in the field and interview stakeholders in the recruiting process, beginning with the hiring managers. Get input around the demand for recruiting and the level of pain involved in the various tasks. Any CFO is sensitive to this feedback.”

HR executives and recruiting directors can also design and conduct an internal survey that will capture the time consumed by various recruiting tasks and the effort involved in navigating the current system. The information gleaned from the internal survey and from hiring managers in the field allows recruiting directors to develop a baseline against which improvements can be measured at regular intervals after additional resources are deployed.

HR executives and recruiting directors must also document the cost of the improvements by soliciting bids from vendors.

“Look at the issues holistically,” Rehfeld advises. “Evaluate the tools that address each task and the degree to which they can integrate all the parts into one coherent system. In the marketplace, plenty of companies take advantage of specific solutions but don’t take advantage of integrated solutions that address all the recruiting tasks and achieve incremental value by doing so.”

A comprehensive system should offer continuity across geographies and a full set of compliance tools—features that CFOs will find particularly appealing.

“To help build the business case, calculate the cost of noncompliance and the risks entailed,” Rehfeld says. “To ensure continuity, look across multiple locations and hiring across all those locations. HR executives can end the nightmare of wondering whether recruiting-related policies and practices are actually implemented in a uniform manner. Continuity drives compliance.”

HR executives and recruiting directors can also establish costs and ROI metrics through third-party research.

“In addition, tap vendors with extra teeth for showing the ROI on a recruitment-process investment,” Rehfeld says.

During the past decade, recruiting has gained greater attention in the C-suite as top executives increasingly realize that corporate growth hinges on hiring the best talent for key positions in the organization. Meeting the mandate for effective recruiting, however, means that HR executives and recruiting directors in many organizations will have to make a successful case for additional resources.