Hiring the A-Team: A Strategic Investment, Not a Cost
Hiring top talent should be more than just filling a vacancy. If you’re a hiring manager it’s an investment in your future. If you’re an HR leader or recruiter, it’s how you change your role into a strategic partner. That’s what “Moneyball for HR!” is all about.
Unfortunately, too many hiring managers overlook the significance of this decision, treating it with less rigor than it deserves. On the day I became a hiring manager, more than a half a century ago, my boss told me something that still rings in my ear:
“There is nothing more important than hiring top talent. Nothing. Everything else can wait.” – Chuck Jacob, circa 1972
When making hiring decisions, managers often lean too heavily on assessing either the depth of a candidate’s technical skills or their personality traits, such as assertiveness, or their communication skills.
To illustrate the magnitude of the decision, consider the financial implications of hiring any professional staff member. Viewing this decision as a $1 million multi-year investment can help underscore its importance. The graphic below summarizes the idea.
In most organizations, a $1 million investment would be treated as a capital expenditure, requiring a comprehensive financial return on investment (ROI) evaluation, with scrutiny and approval from the finance department. Hiring should be no different.
Quantifying the Hiring Decision Using the Lifetime Value of Every Hire
One effective way to quantify the value of hiring decisions is by using a model similar to the billable consultant model, even for non-revenue-generating employees. Typically, this model estimates that an employee’s total financial value is three times their base salary. This figure represents the gross profit margin they contribute, which, after accounting for their salary, benefits and direct costs, equates to 1.5 times their base salary.
For the top 25% of employees—the A-Team—their impact and productivity are typically 50% greater than the average employee. As a result, they generate 2.25 times their base salary in gross profit per year. Given that A-team members often stay with a company for three to four years, their lifetime gross profit contribution can be as high as eight to nine times their base salary. For example, an A-Team member earning $100,000 annually could generate $800,000 in lifetime gross profit. Considering that most professional staff earn more than $100,000 per year, the lifetime gross profit for A-Team members easily exceeds $1 million.
Conversely, the D-Team—employees who perform far below average—contribute significantly less, have much higher turnover and demotivate everyone else in the process. As a result their gross profit margin is at least 50% worse than average, resulting in a much lower, if not negative, ROI.
If you’re hiring people who manage others, including executives, or anyone who has a direct impact on the profitability of the business, this 3X billable model is too conservative. In these cases you’ll need to make some type of P&L estimates based on their total budget or degree of operational control.
We discuss these ideas at our ongoing “Moneyball for HR!” discussion group. The focus is on using different techniques to quantify every hiring decision in financial and ROI terms.
The ROI of Hiring the A-Team
The ROI of hiring A-Team members is substantial, ranging from 500% to 1000%. In stark contrast, the ROI for D-Team members is close to zero, if not negative. This stark difference underscores the importance of investing the time and effort required to hire top talent.
Spending a few extra hours to ensure you’re hiring the best candidates is not just a good practice; it’s a strategic investment in the future of your company and the hiring manager’s success as well.
For some practical proof of this difference, survey your hiring managers and ask them who they spend the most time with managing, their A-Team or their D-Team. In most cases it’s with their weakest team members, pushing them to produce average work. Given this stark difference, I still wonder why hiring managers won’t spend a few extra hours before hiring someone to ensure they’re making the best decision.
Hiring the A-Team is the gift that keeps on giving. Taking hiring shortcuts is the route to disappointment, frustration and wasted effort.
Adopting a disciplined approach to hiring, akin to making a $1 million investment, can significantly improve the quality of the people you hire and, ultimately, the success of your company. Treating hiring decisions with the seriousness they deserve will not only enhance your organization’s performance but also secure its future growth and stability.
“There is nothing more important than hiring top talent. Nothing. Everything else can wait.” – Chuck Jacob, circa 1972
Lou Adler is the CEO and founder of Performance-based Hiring Learning Systems – a consulting and training firm helping recruiters and hiring managers around the world hire more outstanding and diverse leaders. Lou is the author of the Amazon top-10 best-seller, Hire With Your Head (John Wiley & Sons, 4th Edition, 2021), The Essential Guide for Hiring & Getting Hired (Workbench Media, 2013) and LinkedIn Learning’s Performance-based Hiring video training programs. Make sure you check out his “Moneyball for HR!” webcasts and training program on how to use AI to make better hiring decisions.
