Without Exception, Use Your Hiring Process!

A key issue frequently undermining even the most well-conceived and developed hiring systems is a lack of consistent use on the part of the employing organization. It is absolutely critical that organizations use their selection systems as intended without exception. Failure to do so can result in highly negative outcomes (and not only in terms of individual employee performance). The purpose of the current blog is to underscore the importance of using employee selection systems and tools as intended, 100% of the time. That is, in order to reap the many benefits of a well-designed hiring process, organizations have to be completely compliant in using it. It is not enough to simply have a sound process in place. It must be used. It is often the case that particular business unit(s) or subgroup(s) within an organization use established hiring tools more diligently than others.  For a wide variety of reasons (e.g., managerial preference, feelings of inconvenience, the need for a speedy hire, etc.), some organizational subgroups fail to use hiring tools as intended.  In the grand scheme of things, does this really make a difference?  Absolutely.

The Case of Employee Turnover

It is a well-known fact that turnover costs organizations tremendous amounts of money each and every year. In fact, the U.S. Department of Labor estimates that it costs a company one third of a new hire's annual salary to replace an employee. This is in large part due to what has been described as separation costs [1] (e.g., exit interviews, administrative time, separation pay, increased unemployment tax) and replacement costs (e.g., advertising, pre-employment administrative functions, interviews, testing, travel and moving expenses, medical exams, etc.). In the restaurant industry, turnover is a notorious problem, both at the hourly and managerial levels.  Research conducted with many of our own restaurant industry-based customers has found that the cost associated with hiring a new hourly employee can be upwards of 2,000 dollars … per employee.  This number drastically increases when talking about managerial employees. So, with the tremendous monetary cost associated with hiring new employees, it makes sense for organizations to look for ways to ensure that current employees stay. One way to do this is to consistently use a well-designed selection system. This does not mean to use it ‘once in a while’ or ‘most of the time’…this means to use the hiring process always, 100% of the time. 

For example, using selection procedure information gathered from 665 individual restaurants within a prominent national chain, the difference in annual turnover of hourly employees between 100% compliant restaurants and all others is remarkable.  Restaurants that used the organization’s hiring tools and process with 100% compliance (n=68) averaged nearly eleven percentage points lower annual turnover than all other restaurants in the organization combined (n=597). The resultant financial loss for the organization is even more staggering.  Each restaurant within the company has an average of 88 employees. This means, on average, individual restaurants that are completely compliant (i.e., zero “exception hires”) hire approximately 99 new employees per year (based on a replacement rate established by dividing the average number of quits and discharges during the year by the average number of staffed positions during the year per restaurant as outlined by the Bureau of National Affairs – BNA²). On the other hand, those restaurants that were any percentage less than 100% compliant averaged approximately 109 new hires during the year.  These 10 additional hires cost each of these individually non-compliant restaurants about $23,000, at the minimum (using People Report’s estimate of the cost of turnover for each hourly restaurant employee of $2,300³). This figure does not include other less tangible costs such as reduced employee productivity, increased on-the-job training demands, recruiting expenses, etc. Multiplying this $23,000 by the 597 less than 100% compliant restaurants equals an added cost of nearly 14 million dollars to the organization as a whole. This substantial monetary outlay could have been avoided by simply using the employee hiring procedures that were already in place.

Use Your Hiring Process (all of the time)!

So, the message is clear.  Use your selection tools for all new hires all of the time.  Make no exceptions.  Make no excuses.  Even the soundest hiring process will be much less effective if it is not used consistently across all job applicants all of the time.  It is one thing to expend the effort and resources necessary to develop a valid and practical hiring system within your organization. It is another thing entirely to ensure that it is used properly. However, doing so can result in tremendous benefit to your organization.

End Notes 

¹ Cascio, W.F. (1998). The future world of work: Implications for human resource costing and accounting. Journal of Human Resource Costing and Accounting, 3 (2), 9-19.

² The Bureau of National Affairs (BNA) examples of methods to calculate turnover:

Instability rate - total number of separations during the month divided by the total number of employees at the beginning of the month times 100. To annualize, use total terms for the year and the average of the beginning headcounts for each month.

Quit and hire rate - the number of employees who quit in the month, plus the number of employees hired in the month, divided by two times the average number of employees, times 100.

Replacement rate - the number of quits and discharges during the period to be measured, divided by the average number of employees during the period, times 100.

True rate - total quits and discharges, minus unavoidable quits, divided by average number of workers, times 100.

³ Rowe, M. (2005). 12 ideas for a profitable 2005: Simple but effective ways to boost the bottom line. Restaurant Hospitality, January 2005.