Determining the ROI on a New Hire

Determining the ROI on a New Hire

When you hire a new employee, you’re making a massive investment of time and resources to bring that employee aboard. In fact, the cost of hiring an employee can be several times that employees annual salary! So, how do you know if you’re getting a return on your hiring investment?

Determining an ROI can be a useful tool for your business.

It’s only natural for businesses to want to understand the effectiveness of their investments. New employees are an incredible investment, and the productiveness and results of an employee are integral to the success of every business.

When calculating the ROI of a new hire, determining the cost or speed of hire is not the way to go. Hiring success should be determined by the quality/performance of the new hire. Determining quality can be a challenge for many employers, but there are several main areas that can help any employer determine the quality of an employee:

  1. On-the-job performance. Give a new employee time to acclimate to the new role, then review output and production of the new hire, compared to other recent hires, as well as an overall average of your entire team. To allow for training periods, review the numbers at the 1-month mark, and the 6-month mark (or other marks as determined by your organization).
  2. Subjective assessment. Have managers complete subjective assessments at standard intervals for all employees. Use a standard set of measurements, so that comparisons are fair and provide value. Assessments should be completed at the 1- and 6-month marks, or at other intervals determined by your organization. 360 team assessments can also be used at this point.
  3. Compensation. Computed over the course of a year or longer, compensation can also be used to weigh the quality of an employee. The number of salary increases, amount of any bonuses, awards/nominations and time between promotions can be used to compute a new hire’s compensation value.
  4. Percentage of goals/qualifications met. At the time of hire, determine specific production goals and qualifications you expect the new hire to achieve, at specific intervals.

Together with your HR and leadership teams, your organization can apply these areas to help determine an accurate ROI on your new hires.

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