What is the cost of hiring

Study shows it costs about $43,000 to hire an executive and $3,300 to hire a clerical worker
By Alan Davis
|Canadian HR Reporter|Last Updated: 06/04/2003

C

ost-per-hire is the most commonly encountered metric in the recruiting arena. It can apply both to internal promotions or transfers, as well as new hires from outside the organization.

Unfortunately, however, there appears to be no consistent standard of measurement. Making comparisons of cost-per-hire dollar amounts between different organizations can be extremely misleading. Management time and overhead costs are sometimes included and sometimes excluded in the calculation. However, internal consistency of measurement within the same organization does provide reasonable comparison of one cost-per-hire over another.

Cost-per-hire calculations can get extremely complicated, but any over-simplification can create extreme inaccuracy. The latest

Compensation Planning Outlook

published by the Conference Board of Canada calculates the average cost-per-hire as follows:

•executive — $43,000;

•management/professional — $17,000;

•technical — $13,300; and

•clerical/support — $3,300.

Equivalent comparisons from other sources point to extremely different numbers. According to some U.S. sources, the overall average cost-per-hire in the last year has fallen from (CDN) $6,200 to less than $5,500. Others report that the cost-per-hire is going up by 2.6 per cent on an annual basis. All of the experts in cost-per-hire calculations agree on one thing: calculating cost-per-hire is extremely complex and inconsistent.

There are other relevant metrics that are seen less frequently, but can be equally important.

Time-to-hire

This metric is somewhat easier to measure, but statistics are somewhat harder to come by.

Again quoting the Compensation Outlook 2002 by the Conference Board of Canada, the average time-to-hire has been calculated as:

•executive — 15 weeks;

•management/professional — nine weeks;

•technical — seven weeks; and

•clerical support — four weeks.

These are averages. Everyone has heard horror stories of extreme time lines, especially at the executive level where time-to-hire can take from 12 to 18 months.

Also seen at the technical level, where there are often critical skill shortages, the time-to-hire of seven weeks could be viewed as an incredible victory.

‘Outside the box’ metrics

Here are some suggestions of other equally relevant metrics that should be considered when measuring the effectiveness of recruiting efforts.

The cost of

not

hiring is very hard to measure, but some attempts have been made to provide measurements on a consistent basis. Without a doubt, the costs of not hiring critical employees could be massive, and not just financing. In critical positions like doctors, not hiring could result in lengthy waiting times in the emergency room and, at worst, the death of a patient who did not receive treatment on time. In the commercial world, the costs of not hiring at the management level can also cause side effects like the departure of subordinate staff, who perceive a lack of support from above.

The quality of hire is perhaps the most critical of all metrics, yet I’ve never seen it measured. Maybe it is simply too difficult to measure.

The cost of hiring a terrible employee can be mitigated fairly promptly. You simply take the appropriate steps to remove the poorly performing employee from the organization — which can be done relatively quickly and without incurring too much expense — and replace them.

Possibly the worst-case scenario is hiring marginal performers, who never perform so badly that they need to be fired, but who take up a disproportionate amount of management time trying to improve their performance. The worst consequence, of course, may be that these people can cause high performing employees to quit.

Organizations need to invest in talent acquisition, and to pay more attention to some of these critical metrics in the recruiting process.

Anybody in the recruiting arena must be cognizant of the cost-per-hire calculation yet must equally be wary of its limitations. The short cuts in the recruiting and selection process can be devastatingly expensive. Measuring cost-per-hire alone is a massive over-simplification of the business issues involved.

Alan Davis is founder and president of Alan Davis & Associates Inc. (Picking Winners Search), a specialized recruiting practice with offices in Quebec and Ontario. His company provides specialized services in strategic recruitment and selection, succession management and interview training. For more information contact (450) 458-3535 or visit www.alandavis.com.

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