Discipline Beats Instinct, in Picking People as in Picking Stocks

A graph depicting the performance of two different stock selling strategies showed that both strategies resulted in better results than the benchmark stock indices. However, while both strategies outperformed the market, the strategy that eliminated judgment from the sell decision outperformed the judgment-based system by a factor of more than four to one!

While I’m not suggesting stock trading as an HR activity, there is a solid lesson in these findings for people making hiring decisions.  That is, a disciplined, objective approach to hiring will enable companies to more consistently hire employees who share the company’s values, perform to its expectations and stay long enough to make a valued contribution. 

Buyer Beware

The market is filled with personality, behavioral, skill-based, cognitive ability and other hiring instruments, but all tests are not created equal and no test is applicable to all situations. The validity of a particular hiring tool is dependent on the specific application in which it’s meant to be used.  As an example, there are many tools that measure and provide insight on an array of personality traits, but much of that insight might have absolutely nothing to do with whether a person will be successful in a particular job.  A valid personality assessment will focus only on personality traits that are correlated with actual job behaviors. The objective is to provide information that predicts performance, not personality.

The Proof’s in the Pudding

Figure 1 shows the relationship between managers’ scores on a personality test (vertical axis) and their actual performance on the job (horizontal axis).  The sample includes more than 1,000 managers.  The height of the bars represent the average assessment scores for all managers receiving performance ratings between two and five, with five being the highest performance rating. 

Figure 1. Post-Hire Performance Ratings vs. Assessment Scores

An interesting note about the results is that all the managers in the study took the hiring test at least one year BEFORE their supervisors provided the performance ratings, and the hiring test scores were never released to the company before this analysis.  Thus, the personality test accurately predicted performance for those candidates who “made the cut,” and as the relationship between test score and performance is on a continuum, it is safe to say the company saved themselves a lot of aggravation by not hiring those candidates who did not pass the hiring test. 

Raising the Bar

Perhaps the most compelling insight is this:  What if the company raised the minimum score required for employment by just half a point?  For example, what if they raised the cut score from 24 to 24.5? One implication is the company would expect to have a lower passing rate for its candidate pool moving forward, probably cutting the pass rate by about 10 percent. But, given the current excess supply in the job market, this might be an ideal time – and a good strategy – for the company to raise their performance standards and gear up for instilling a competitive advantage through the quality of their people.