by Paul Barada

How are you allocating your employment budget? Is your major investment at the front end of the process, during the employee-selection stage, or is it at the opposite end of the process, in things like outplacement and exit interviews? Sounds like an odd question doesn't it? I would have thought so too, had it not been for a recent conversation with the HR manager for a major corporation.

We were discussing how his company went about identifying and qualifying prospective employees. The HR manager mentioned how proud he was that the company's average cost-per-hire was incredibly low per person across the board. I could hardly believe it. Compare that to the most recent cost-per-hire survey conducted by the Employment Management Association (EMA), which puts the average in the thousands per person nationally. What made the discussion with this particular person even more interesting was that he asked if our company could conduct either employee satisfaction surveys or exit interviews for his company. Yes, I told him, we could, but I wanted to know what his turnover rate might be, just out of curiosity. The answer? Nearly 40 percent. What's wrong with this picture?

Think about the implications of this true story: Low up-front hiring expenses and a huge turnover percentage. Even more interesting is that this HR manager was perfectly willing to spend thousands to find out why employees were leaving and whether or not they were happy in their work. Apparently, no one within this company had taken a very serious look at the costs associated with such huge turnover problems. Although I cannot give you precise pound sterling amounts, I'm willing to bet that the costs associated with that level of turnover are greater than the average nationwide cost-per-hire provided by the EMA.

Think of the training and retraining expense, the disruption in the continuity of the workforce, the expenses of employing people in terms of wages, benefits and other direct labour costs, and the cost of productive time -- the "opportunity cost" -- on the part of supervisors and managers involved in the constant training and retraining of four out of every 10 employees. This may be one of the most graphic examples I've ever seen of being "pennywise and pound-foolish."

Here's a different scenario illustrating how to allocate your employment budget. A few years ago, we were asked to do reference checking on every candidate being considered for employment at a totally new start-up manufacturing facility. Initially, we received more than 6,000 applications for approximately 300 new jobs.

Considerable time and expense were involved in advertising the openings, screening the pile of applications, scheduling initial and follow-up interviews, and carefully checking references. An added expense was setting up on-the-job training, and carefully explaining the company's goals and philosophies to each new group of employees.

Needless to say, the cost-per-hire was significantly more than the initial figure. The goal was to ensure that the best people possible were being hired for the jobs to be filled, all the way from custodial positions to plant manager. Because such care was used, the rate of turnover at the end of the first year of operation was less than 4 percent.

It doesn't require a degree in rocket science to understand that the careful selection of employees, although more expensive initially, will save money down the road in terms of replacing and retraining employees and ensuring a productive workforce. Over time, a higher cost-per-hire will inevitably be more than made up in the profitability of a solid, stable and carefully selected workforce. The place to put you’re your employment budget is at the front end of the hiring process, not as employees are going out the door.