By Ira S. Wolfe

This article was published in Business2Business, July 2001

My-oh-my, how things have changed. The market is now running on empty, supplies are tight, prices are up, and consumption is increasing. I'm not talking about gas, oil and electricity. I'm talking about employees - qualified and skilled employees to be specific.

People fuel companies. Unfortunately much of the available fuel is junk or still in its natural raw state. It used to be that people interviewed for jobs, they were hired, and many stayed on for the next twenty or thirty years. Today just about any employer will tell you - shortages of candidates has eased slightly up but quality still lags.

Yes, the unemployment rate has risen from its low of 3.9 percent. In May 2001, the unemployment rate stood at 4.4 percent. And yes, it will likely increase again due to more and more layoffs. But for those of you who remember back to January 1992, smack in the midst of our last recession, the unemployment rate for the civilian labor force was 7.3 percent. If you are an employer looking for relief from the hiring and turnover game, these recent gains in unemployment provide only a sigh of relief in this war for talent. The troops may have receded but the talented and skilled are merely just cleaning their muzzles and reloading their guns.

A more in-depth look at unemployment reveals some astonishing numbers. The unemployment rate for managerial and professional positions in May remained at an incredibly low 1.9 percent, for college graduates (2.1 percent), for high school graduates with some college (3 percent) and for technical, sales and administrative support (3.7 percent).

To get a better sense of the available pool of applicants, you need only to look toward individuals with less than a high school degree (6.5 percent unemployment), female family heads (6.2 percent), or teenagers (13.5 percent).

Keep this in mind. The best estimate is that by the end of this decade, there will be approximately 105 jobs for every 100 people. The best candidates still have many employment choices in today's labor market as they will for years to come, especially in jobs requiring advanced degrees or managerial/sales experience or service skills.

And now new research is telling the business world that people leave managers, not companies and that turnover is mostly a manager issue. Combine this with the low unemployment rate for manager-level positions and a four percent decline in the 18-29 age group, and you will see that the candidate pool for managers and professionals has not just shrunk but evaporated. Filling an open position at this level of business is like throwing water on a hot tin roof at noon on a sizzling summer day….the water evaporates as soon as it hits the surface.

What does this really mean for managers? Despite what is still considered slim pickins', the current labor pool will not be as rich in numbers or talent as it is today. Many company engines are pretty sluggish from hiring the wrong people or even worse, from the residue left after layoffs. These cutbacks have all but gummed up the moving parts. Now is the time to audit the quality of your current workforce and identify which employees have the skills and potential to fuel their organization toward the future.

To get a sense of what top performing companies expect from selecting and retaining the right people, the productivity of the top 16% of employees from over 21,000 organizations was compared to their peers. The top 16% produced "productivity premiums" ranging from 19 percent for clerks and word processors to 48 percent for managers and senior-level individuals and from 50 to a whopping 120 percent premium for sales positions.

The results of this 21,000 organization business case study showed a strong (95 percent confidence level) to a very strong (99 percent) correlation between the impact of employee and customer satisfaction and retention and superior business performance. Even more revealing was that these dimensions of performance translated directly into bottom line results such as greater profitability, productivity, and shareholder returns. Companies that practiced performance management delivered 40 percent higher total returns to shareholders than those without a process.

In another study, A.C. Nielsen, losing millions of dollars as recently as 1996, reduced turnover by 50 percent, increased operating margins 400 percent and employee/customer satisfaction levels improved nearly 75 percent just by tying 25 percent of the a manager's bonus to the results of a survey of employee attitudes.

These same companies found that performance-driven incentives resulted in 35 percent higher revenues and 339 percent increases in customer satisfaction. But…and this is a BIG BUT, when incentives were combined with micro-management, net profits declined 36 percent!

The companies experiencing the highest retention rates, highest growth rates and even the highest shareholder and stakeholder returns understand how to harvest the talents of people without killing the "plant" (people) and destroying the soil (morale and company culture). Three of the practices used by these top-performing companies to get these superior results are:

1. Identifying the essential functions of the job.
2. Identifying if the candidate (or current employee) has the skill or the potential to do the job successfully.
3. Measuring the results of what they are doing.

Job analysis is a common method utilized for identifying the job tasks that you absolutely can't live without, how frequently they need to be completed, with what intensity, for how long and how much impact they have on the performance of the organization. The technique is not new. Job analysis is no more than a process to understand what it takes to do a job successfully. In other words, if the job could talk, what would it say.

A job analysis then leads to job matching, comparing the skills and potential of an individual to the required skills of the job. Job matching has been proven to increase the odds of hiring the right person by nearly 400% over using the interview alone. How effective you are at job matching will depend on how effective you are at gathering the right information from a candidate and then assessing if it fulfills the requirements for the job.

Structured and standardized selection interviews help gather and evaluate the information from and about a candidate. The interviewer then should compare it to a set of skills, competencies and other requirements of the job.
When used alone, traditional interviews identify top performing employees less than two out of ten times. In fact, Larry Brossidy, former Chairman and CEO of Allied Signal, feels that the interview is the most flawed process in American business.

Behavioral and structured interviewing increases the chances to nearly four or five out of ten. Most managers, however, just don't have the time or make the time to learn the behavioral interviewing technique. That is why more and more companies are including objective measurements like employment tests into the performance process.

A recent Corporate Leadership Council study indicated that 77 percent of the Fortune 500 use some kind of competency-based system to evaluate employees. Competency measurement is a key building block for human capital management.

Employment tests result in a significantly more effective, efficient and targeted interview process. Behavioral and motivational-based tests provide valuable clues to predicting human potential and performance and help anticipate stumbling blocks. The use of personality and interests testing improves the probability of predicting a successful candidate by 100 percent and 300 percent respectively.

Interestingly enough interviews are considered to be a test under EEOC guidelines for employee selection and will be held up to the same testing standards as personality, integrity, interest and abilities testing if ever challenged. When evaluating whether a test is or should be used in selecting your employees or evaluating performance, do not overlook the validity and current success rates of your interview process as the primary or exclusive determinant. The rates of success are dismally low especially if the interviewer's technique is unstructured and he or she tends to "wing it".

Managers should use these three criteria to select the right test. First, you need to know what you are looking for. This is satisfied by the job analysis. Second, you need to make sure the test you use can provide you the answers you need. Many tests are valid and accurate but the information they provide is considered nice to know but not essential to your decision or predictive of superior or even mediocre performance.

And third, the results should be readily apparent or you should have a certified analyst available who will help you interpret what you need to know and how to look for the relevant information. If you prefer to own the process internally, many companies train and certify internal consultants in interpreting the tests.

Finally, validation studies should be used to continuously evaluate the effectiveness of each method and tool you use, even looking at the sources for new employees. This is self-explanatory I would say. If your interview and retention process is working for you, do more of it. If it is not working, fix it. And if you are not sure, shame on you. If you don't measure, you don't know.

Job matching is clearly one welcome solution for managers to help them avoid hiring people that impress them in the interview but then can't seem to do the job once they are on the payroll. And now linking the retention rates of top performers to more profits and larger operating margins, hiring right not only makes good business sense but more dollars and cents for shareholders and stakeholders.

For more information, contact Ira S. Wolfe at 717-656-4632 or iwolfe@super-solutions.com.

Ira S. Wolfe is Founder of Success Performance Solutions, a training and assessment center helping businesses to match, manage and motivate employees. He will be presenting How to Match, Manage and Motivate Employees, along with five other hiring, retention and customer service programs, at the end of September in Malaysia and Hong Kong. Ira also writes and speaks across North America on The Perfect Labor Shortage: Why This Labor Shortage Will Not Blow Over.
Ira can be reached at 717-656-4632 or iwolfe@super-solutions.com.