EDITOR’S NOTE:Edward E. Ryan is president of MPR, Inc., an international consulting firm which specializes in productivity improvement through the selection and management of talented personnel for all positions within an organization. Ryan presented the following concepts for better hiring at an educational forum for owners and managers of member companies in The Unified Group, an alliance of hvac contractors who share a commitment to remain independent.

As the founder of the MPR System, I’ve spent the last 30 years observing how hiring decisions are made. You know what I found out? People aren’t that important.

Yet, you always hear executives say, “People are the most important asset at our company.” Do they really mean it? I don’t think so, judging by their actions. Business executives seem far more concerned with sales, marketing, production, and finance.

Managers “talk the talk” on hiring, and don’t “walk the walk.” What they do is much more important than what they say.

There is a tremendous hidden cost to bad hiring. If you factor in cost of ads for recruitment, salary, training, productivity losses, and new customer opportunity losses, you begin to get the picture. The current formula for estimating the minimal costs of poor hires is two to four times annual salary. So, if you’re paying someone $40,000 a year and he turns out to be a bust, he will probably cost you between $80,000 and $160,000.

Hiring Strategy

Changing your approach to hiring is critical. Like it or not, talented people are the key ingredients for a company’s survival and growth. Those that don’t keep top talent will be forced to sell their business or go under altogether. A recent McKinsey study, called “The War for Talent,” makes this point emphatically.

But here’s the catch: there is and will continue to be a shortage of talented personnel from whom to choose. Companies simply must educate and provide support to assist managers in making smart staffing decisions.

When you hire, you are renting or leasing behaviors, only it’s a far more important decision than which car you choose. You can either hire people who have the “right stuff” for your organization – or resign yourself to corporate mediocrity.

Here, then, are my suggestions about what you can do to win the talent war.

  • Spend as much time focusing on hiring as you do managing corporate finances. You and your management team need to devote significant time and energy to building a top-notch staffing system and then be prepared to enact that plan. As the talent war heats up, prepare yourself; you and your fellow executives are going to have to spend much more of your time in the staffing area. Gone are the days when the recruiting position at a company is looked down upon.
  • Take a good look at your current staff. “Talent degradation” is a reality at many corporations. As water runs downhill, so does talent in a company. A startup may have very talented individuals in the beginning. These workers are usually “10s,” but they usually hire 9s — so as you see, talent is heading downhill. The leading contributor to talent degradation is lowering standards in the hiring process. So now, 6s are hiring 5s. Selecting one individual from a group of finalists by comparing one to another is another factor. So now, 5s are hiring 4s and 3s. You get the picture.
  • Become a behavior observer. Become behavior conscious, and rally the troops behind the behavior banner. Combine that with focusing on behaviors when you recruit, and you’ll win many battles in the war for talent.
  • Retain the best and brightest. Employees usually leave when they’re dissatisfied in some way. Conduct reality checks with your top performers, even if you think they’re happy. Encourage them to do the same with those who report to them. Conventional wisdom is that managers should not try to be friends with their employees or get too close to them personally or professionally. That can lead to dire consequences. You need to understand who your employees are and what they need on the job – and off – to be satisfied. Caring managers are the critical linchpin of a loyal workforce.
  • Significantly increase the applicant flow. The days of simply placing an ad and expecting huge numbers of qualified applicants to spill in are over. Companies must become proactive, using employee referrals, the Internet, and other innovative practices for surfacing candidates. One must increase the applicant pool in order to hire the best.
  • Develop a top-notch employee referral program. Ideally, your company referral program should be able to generate 70% of your employees. The figure is based on the experiences at top companies. Financial incentives work the best, and can range from $500 to $5,000 in cash, depending on job level and demand. Such payments often are relatively small compared to the cost of using placement firms to find candidates for hard-to-fill positions. Best practice: Award 50% cash up front to ensure that individuals feel properly motivated for finding new employees.
  • Design and implement a selection methodology to ensure that you hire talented people who will grow with your organization. Job candidates aren’t always candid — so don’t look the other way for the sake of expediency when you make this all-critical management decision. Establishing a behavioral benchmark — a collection of traits that depict how this person thinks, acts, interacts with others and is motivated – is key. Bear in mind that the résumé of the average person has up to 40% untruths, so it’s important to go beyond superficialities to get an accurate picture. When checking references, dig deeper into a candidate’s past. Many managers refuse to ask the really tough questions for fear of turning up unfavorable information and having to start the whole process over again. Better that they would. You want someone with talent, experience, and a personality fit with your company. Never compromise on talent or chemistry.
  • Hire a true recruiter to staff your team. I usually advise the owners of smaller companies to turn over the regular human resources functions – salary, administration, benefits, insurance, etc. – to their administrative and financial personnel. Then hire someone whose total focus will be on improving the staffing function: recruiting and hiring the best. And what kind of profile should this person have? Someone with a recruiting or sales background. Make sure that this executive reports directly to the company president. That way, you’ll be sending a clear message that your company knows the importance of hiring the best.
  • Publication date: 01/29/2001