Human Capital Debt
Why hiring well is essential, and hiring poorly is catastrophic
Pomello is hiring. As a company that focuses on making hiring better for other companies, we feel a lot of pressure to make good hiring decisions. So let me say this first: hiring is hard even when it is what you think about all the time.
It is hard because it is everyone’s responsibility and no one’s priority. We all tend to believe that hiring is an addendum to our ‘real jobs.’ Jobs for which we are compensated and rewarded when we do them well. But when was the last time you had a performance review that discussed your contribution to attracting and evaluating new hires for your team? Unless you are a recruiter, my guess is never. No one is perfect at hiring, but that’s not most companies’ mistake. The mistake most companies make is not communicating the costs of not hiring well, and teaching employees what to look for in potential team members.
Instead, we allow ourselves and our teams to hire for speed and cut corners because we all want to get back to the real work right? We spend less than minute looking at any given resume. We only spend an average of 6.25 seconds reviewing any given resume(source: the Ladders). This is not to say we aren’t exerting effort, we are. The human approach to complex problems is to create heuristics or shortcuts for solving a problem. Unfortunately, the heuristics we tend to use are flawed. The school that someone went to, the GPA they earned, the way they look, the beer they like to drink, are all largely irrelevant to predicting their success.
There is a price to cutting these corners. Every member of your team racks up a bill when you don’t take the time to hire well, and you don’t focus on the data that matters. So this is where the inspiration for this post comes from. Technology companies are all familiar with the concept of technical debt. Debt is leverage, it multiplies your gains… and your losses. The more technical debt you accrue, the more interest you have, and your budget for building additional features is constrained by your need to make these interest payments. There are good reasons to accrue technical debt, but the benefit has to justify the cost.
Human capital debt is what happens when you rush the hiring process, and you bring someone onto the team for expediency. Usually, it’s because they have a great resume, the right experience, the right skills, but you are compromising on alignment with your team’s mission, vision, and values. Usually, there is a pressing need to increase the bandwidth on your team, or you need someone with a specific skillset. It’s easy to rationalize a quick hire when your short-term needs are acute. That said, this is an expensive debt that will make your team insolvent faster than most other compromises you must consider on a regular basis.
The impact of a great hire on your team productivity should be apparent, and markedly different than a bad hire. If bad hires increase friction on every project, great hires reduce friction. More importantly they bring out the best in their teammates allowing for new competencies to develop within the team. Each unit of human capital is worth more after a great hire.
So how do you make great hires? The solution is to prepare your team to hire well and structure your incentives so that your team feels responsible for making great hiring decisions. And by incentives I do not mean a referral bonus program —even with a 90-day hurdle these programs incentivize sourcing, not evaluation and selection. Here are our top 5 tips for improving your hiring success rate:
1. Make sure that each member of your team knows what skills and values are critical to your team.
2. Train everyone to interview effectively.
3. Hold people accountable for their hiring decisions and investment in new hires by building it into your 1:1 meetings with team members.
4. Celebrate your successes. Recognize excellence in new hires and the team that helped hire them.
5. Consider a discretionary bonus for team members that successfully select and onboard a new team member.
