In the next Journal of Corporate Recruiting Leadership, I take a four-part look at credit checks in the employment process. I outline the current federal limitations on an employers’ ability to obtain and use information regarding an applicant’s or employee’s credit history. I delineate the current proposed amendments to federal statutes. I look at recently enacted state legislation bearing on an employer’s use of credit reports. Finally, I suggest possible options for employers in dealing with this fast-changing legal landscape.

For these purposes online, I’m just going to tackle the fourth part — your options for handling federal and state legislation in flux.

Well, not just in flux but, it appears that both state and federal law is trending toward less access to consumer reports. Taking these changes into account, what can employers do to minimize their liability while still gaining access to credit information regarding current or prospective employees when necessary? The answer most likely involves the state and federal statutory definitions of “consumer reports” and “consumer reporting agency.”

The proposed federal changes, as well as proposed Oregon and Washington statutes, are only triggered when an employer obtains a report from a consumer reporting agency, generally defined as an entity that compiles consumer credit or other background information and provides consumer reports to third parties. If the employer itself obtains information regarding an individual’s credit history, these statutes are not triggered.

Although not as detailed as the information that a consumer reporting agency provides, an employer could still search for and obtain public court records for judgments entered against an individual.

While not as comprehensive, if not downright clunky, this is information that could provide similar information to a credit report. It would show, for example, whether any judgments have been entered against the individual for outstanding debts. An individual with a poor credit history may very likely have judgments against them in favor of one or more creditors. To the extent an individual’s failure to pay his or her debts is important to the employer, taking the time to search for judgments against a particular individual may provide the necessary information without running afoul of credit-check regulations.

Employers conducting their own searches must be careful, however, of the restrictions of the Bankruptcy Code, which prohibit an employer from terminating or otherwise discriminating against an employee solely on the basis of a bankruptcy filing. For this reason, employers seeking to avoid the pitfalls of the proposed FCRA amendments and state statutes restricting the use of credit information with respect to certain positions should also avoid making any decision based on public bankruptcy filings. It is worth noting, however, that a recent case from the Western District of Pennsylvania held that the Bankruptcy Code’s discrimination provision does not apply to decisions made regarding prospective, not current, employees.

You have a great candidate who seems ideal for the job you’re looking to fill and you start researching her online. You land on her Facebook page where you see a picture of her and your spouse or partner, which suggests that they’re more than friends. What do you do?

1. You shred the resume and delete it from your ATS
2. You make up a reason why she’s unqualified
3. You look up the classifieds in Soldier of Fortune magazine
4. You decide to interview her anyway

If you picked #4, you’d be in the minority.

In a recent survey by Microsoft 84 percent of U.S. recruiters think it is proper to consider personal data posted online when evaluating a candidate and do online research using search engines, social networking sites, photo- and video-sharing sites, personal Web sites and blogs, Twitter, online-gaming sites, and even classifieds, and auction sites like Amazon, eBay, Craigslist, etc. What they expect to find in that last category is a mystery, but I guess you never know. Now whether all this “research” does anything to improve the quality of hires, or it’s just an excuse for voyeurism, is something we’ll likely never know. The survey doesn’t address results or even ask about the respondent’s perception of results.

Sauce for the Goose

If the survey numbers are true, then thousands of hiring decisions are being made based on information that may or may not be valid, from sources that may or may not be reliable, and using criteria that may or may not be relevant to hiring. What could go wrong? The Shirely Sherrod case that has been in the news is a perfect illustration of what can happen when an employment decision is made without understanding the context or the credibility of the source. And that involved dozens of people up to the level of the White House.

The survey mentions that concerns about lifestyle, inappropriate comments, and unsuitable photos and videos top the list of reasons that those surveyed give for rejecting a candidate. Well, since these criteria are so well defined with no possibility for ambiguity, it must be all right to use them. But recruiters also rejected applicants because of inappropriate comments by friends, family, and colleagues. So it’s acceptable to reject candidates based on gossip?

Relying on online information in a hiring decision can cut both ways. Already, services like Reputation Defender are offering to clean up people’s online reputations by bombarding the web with positive information about its customers, either creating new Web pages or by multiplying links to existing ones to ensure they show up at the top of any Google search. What’s to stop candidates from creating largely fake online personas when they know that recruiters put so much weight on information they find online? Almost half of the recruiters in the Microsoft survey said that a positive online reputation influences the candidate’s application to a great extent.

Be Careful What You Wish For

The danger for employers is that continuing to make hiring decisions based on data collected online will generate a legislative backlash. Several states –New York, California, and Colorado — already prohibit employers from taking any employment related actions based on legal off-duty conduct. It’s not a reach to see those provisions being extended to hiring decisions. And Congress may get in on the act. In times like these when jobs are scarce, an issue like this can garner plenty of bipartisan support. And that could be a disaster, since laws made in response to populist anger will likely make life difficult. For starters, they would impose very onerous reporting burdens on employers.

Some would argue that any such laws would be difficult to enforce, since a lot of this kind of research on candidates can be done anonymously. But that’s not quite true. Digital forensics is the fastest growing field in the legal profession, and the tools to discover where someone’s been online are getting very sophisticated.

The bigger issue: what’s the value being gained from all this online research? Few, if any, employers have specific policies and rules about how to interpret online information. Unlike information obtained from background checks, which is highly structured and obtained from very credible sources, virtually everything seen online is unstructured and from sources of unknown credibility. Ninety percent of respondents in the Microsoft survey claimed that they take steps to corroborate the authenticity of information they collect online. How exactly does one do that? If they see a picture of a candidate holding a glass of what appears to be beer do they track down the others in the picture and ask if the candidate is routinely drunk?

It appears that much of this activity is done because it’s possible, not because it results in better quality hires. It gives the appearance of having done a good job in evaluating a candidate when there’s no evidence that it makes any difference at all. There are examples of some employer that avoided making a genuinely bad hire because of something discovered online, but those stories don’t establish that aimless trolling for information improves the hiring process.

Interestingly among the survey respondents almost 90% of male recruiters check out candidates online, compared to only about 60% of female recruiters. So maybe it is about voyeurism and not hires. But recruiters are hard-working people, who often get little respect and appreciation. Who’s to deny them some fun?

Some recruiting directors don’t like it when I criticize them for not operating their recruiting function in a more businesslike manner. They fail to realize that the recruiting process directly impacts business revenues and it is at least as important as supply chain, lean production, and CRM. Many who are responsible for the overall recruiting process rely on their gut to determine whether the overall process is running smoothly.

In direct contrast, other major business process owners use a “data or evidence-driven” approach to determine not just whether a process is producing the desirable results but also to determine precisely at what step are the failures occurring. If you’re ready to shift to a more businesslike and data-driven approach that can help you pinpoint the “failure points” in your recruiting process, this article will outline what you need to do.

FPI (Failure Point Identification) — a process for identifying recruiting failure points

The technical term within the field of process reengineering for identifying the specific causes of process failure is “failure analysis” and when a significant percentage of a processes errors occur at a single stage or step, that is known as a “failure point.” As a result, I call the process that I have developed for identifying the weak stages of a recruiting process “Recruiting Failure Point Identification” or “Recruiting FPI.” Rather than trying to completely rebuild the whole recruiting process, the FPI approach helps you identify the steps that are contributing the most to poor results. In fact, it’s quite possible that the majority of your recruiting shortfall is occurring as a result of weaknesses in one or two, out of a dozen recruiting process steps. Unless you can accurately identify these failure points, you run the risk of wasting significant amounts of money and time fixing the wrong step. And by not accurately identifying and fixing these key failure points, you may be dooming your recruiting process to a long future of continuously disappointing results. There are three broad categories of approaches that corporations can use in order to identify the key failure points in any hiring process.

The three basic FPI approaches include:

1. Evaluating the steps in the recruiting process — in order to find failure points, locate the deluded individual step to determine if it is even being carried out, who is accountable for it, and whether there are  metrics for assessing the output of that step. I covered that approach in a related article.
2. Using a yield model to identify failure points — this approach identifies failure points by measuring the yields or the volume remaining after each step. For example, if at the interview step it takes 10 interviews to yield one offer (or a 10% pass-through rate) you know you have a quality issue when the normal pass through is 20%. Whenever the process manager encounters a significant decrease from the average expected pass through percentage at a step, they must take notice and analyze that step. I covered that approach in a related article.
3. Alternative approaches for identifying failure points — this last category includes two dozen alternative approaches that you can use to supplement the “step approach” and “the yield model.” In this article I’ll cover those remaining approaches that can be used for identifying failure points in the recruiting process. I have purposely provided “too many” approaches so that you’re not forced to select an approach that you are not comfortable with.

A list of alternative approaches (categorized by recruiting step)

Each of the major alternative approaches for identifying failure points are bullet-pointed here under the most relevant step in the recruiting process.

Step 1: The application classification step — is the problem originating here?

• Submit “perfect” resumes for screening — if you suspect your problem is occurring at the resume receiving or sorting step, you can test the effectiveness of this screening step by using dummy “perfect resumes.” By taking each of the critical job requirements and placing them into newly created résumés, you can in effect create a “perfect resume” that perfectly fits every requirement of the job. By submitting a variety of these “perfect” resumes under different names you can identify which percentage are actually received and are then classified as “qualified” (i.e. passed along for a phone screen). The percentage of these perfect resumes that should receive a phone screen should be close to 100%, and if it’s not, you will know right away if you have a screening problem (one firm found that 82% of their perfect resumes never made it to step two). Another alternative is to disguise the resumes of your own top employees and submit them to see what percentage of your own top employees would be rated highly by your own screening process (one firm found only two out of five of their top employees would receive an interview if they applied under another name). You can also include some clearly unqualified candidates to see if any (unfortunately) make it through to the phone screening process.
• A comparison classification of the applications — have one or more of your technical employees independently classify a large group of applications/resumes into qualified and unqualified categories. Then compare those results with those from the original classification done by the recruiter to see where the recruiter made mistakes in assessing unqualified applicants to be qualified and vice versa. You can also hire an external agency recruiter to do a similar comparison assessment.
• Use mystery applicants — one of the best ways to identify where problems are occurring in any customer setting is to use mystery shoppers. A similar approach, using anonymous applicants can be an extremely valuable tool for identifying process problems. This process (users have included DaVita and Publix Markets) allows you to hire trained customer service professionals to become applicants in order to assess first-hand at least the early phases of the application and recruiting process. The mystery applicant works best for high-volume jobs that don’t require a high level of professional level knowledge.

Step 2: Sorting applications into the right jobs — is the problem originating here?

• A comparison sort — have one or more of your technical employees independently sort a large group of received applications into what they consider to be the most appropriate open requisition. Then compare that job sort with the same sort that was originally done by the recruiter to see where the recruiter made mistakes in putting the wrong applicant with the wrong job.

Step 3: The phone screen step — is the problem originating here?

• Add professional assessors to the phone screen list — if you are concerned that problems are occurring during the phone screen or during the reference-checking steps, you can check the effectiveness of the process by using trained assessors. Start by periodically inserting the names of trained assessors among the real names to call for phone screens or reference checks. These assessors can take notes and use a checklist to identify potential problems with the phone screening or reference-checking process. Incidentally, just letting your screeners know in advance that a professional assessor may be on the other end of the phone line might by itself significantly improve their performance.

Step 4: The interview step — is the problem originating here?

• Survey candidates about the interview process — one of the best ways to identify problems with the interview is to survey a small sample of the applicants who participated in the interview process. Use a simple e-mail survey after the job has closed and ask them to identify problems that they saw and things that they would improve.
• Survey managers and recruiters about the interview process — survey a small sample of the hiring managers and recruiters after the job has closed and ask them to rate the overall effectiveness of the process on a 1 to 10 scale. Also ask them to identify problems that they saw and things that they would improve.
• Have HR professionals participate — periodically have an HR professional sit in on a random sample of interviews in order to identify what’s working and what isn’t.

Step 5: The offer step — is the problem originating here?

• Survey those who rejected our offer — identify problems with the offer process by surveying each of the applicants who turned down our job offer. Use a simple e-mail survey after the job has closed and ask them to identify problems that they saw with their offer and the process as well as things that they would improve. You might want to delay the survey for several months in order to improve the honesty of the answers.
• Survey new hires — during the onboarding process, survey all of your new hires. Ask them about the positive and negative aspects of the offer process, the interview process, and the overall candidate experience. Because they now work for you, they are much more likely to provide honest feedback so that the firm will be better able to recruit effective coworkers for them in the future.
• Survey managers and recruiters about the offer process — survey a small sample of the hiring managers and recruiters after the job has closed and ask them to rate the effectiveness of the offer process on a 1 to 10 scale. Also ask them to identify problems that they saw and things that they would improve about the offer process.

Other Miscellaneous Approaches for Identifying Failure Points

Some additional approaches to consider include:

1. Identify the dropout point of high quality applicants who you “didn’t hire” — nothing demonstrates failure more prominently than having a process that rejects or somehow loses the very best quality candidates. To check to see if you’re losing top quality candidates, periodically take one or two high-priority jobs. After the position has closed, compile all of the resumes of individuals who were not hired. Identify any of these individuals who would be classified as “high-quality” candidates and identify at which step that they dropped out or at which step you dropped them. Any step where you are losing more than one high-quality candidate must be further analyzed. By the way, if more than 10% of your “didn’t hires” (or whatever number you determine to be appropriate) are rated as high-quality candidates, you must assume that your overall recruiting process is failing.
2. Identify the dropout point of diverse applicants you didn’t hire — periodically take one or two high-priority jobs and after the position has closed, compile all of the resumes from diverse individuals who were not hired. Identify any of these diverse individuals who would be classified as high-quality candidates and find out at which step that they dropped out or you dropped them. The steps where we are losing any high-quality diversity candidates must be further analyzed.
3. Force-rank all applications and see what happened to them — select one or two high-priority jobs and have a hiring manager rank them and number each one from best to worst. Keep the numbers secret until the end of the hiring process. Then see if the person that you actually hired was in the top 10% of the initial ranking. Next, check to see at what step of the hiring process that you lost the remaining top ten percent of all applicants. If a significant percentage are lost in a single step, consider that step to be a main failure point.
4. Ask them to rate each step — give a small sample of applicants a rating sheet and ask them to rate the effectiveness of each step immediately after it is completed during their hiring process. Promise to keep their evaluation anonymous (or don’t open it until after the hiring process is over), in order to minimize any fear they may have of retribution.
5. Identify their frustration points — survey applicants and new hires in order to identify their relative frustration level at each of the steps in the hiring process. Even if their frustrations didn’t cause them to drop out at any step, it’s important to limit their frustration wherever possible.
6. Implement a complaint process — implement an anonymous web-based complaint process that allows applicants to anonymously make comments or to complain about each individual step, as well as the overall process. Then track the number and the seriousness of the complaints at each step, in order to identify the step where the most serious problems are occurring.
7. Survey them three months later — due a follow-up survey of applicants long after they have been rejected in order to see if after a long delay, they are more honest about problems that they encountered.
8. Use external experts -– hire an external recruiting expert to sit through the different steps of the process over several different hires. Use their assessment to identify which steps contain the most problems.
9. Force the step’s owner to periodically conduct an audit -– require the process owner of each major step of the recruiting process to develop an audit checklist, which covers all of the potential major problems that are likely to occur. Require them to periodically do a self-assessment or audit, so that they can continually improve.
10. Use common staffing metrics -– monitor common recruiting metrics like time-to-fill as warning signs. Look at the time that each recruiting step actually takes, and compare it to the expectation.
11. Focus on typical problems — overall, my research indicates that the root causes of most recruiting process problems come from the top of the funnel, as a result of poor sourcing. As a result, if you’re unsure, I recommend that you focus on sourcing problems first, such as over-utilizing sources that contain primarily active candidates, having no direct sourcing, and having a weak referral program.
12. Look for patterns — many recruiting leaders find that the same recruiting problems periodically return. As a result, try to identify these patterns so that you can use them to identify the most probable steps where problems are likely to return.
13. Benchmark other firms — you might find that other firms of a similar size in the same industry have already identified common problem steps. Although they might not be exactly the same, they might be a good indicator as to where to look further. Even if each step in your process is meeting your expectations, it might help to compare your level of expected results against other firms to see if your expectations are too low.
14. Calculate the cost of a bad hire — calculate the value difference in revenue between a great hire and a bad hire in the same position. Use that dollar amount to motivate everyone to continually improve not just the step that they own but also recruiting the overall process as well.

Final Thoughts

I’ve attempted in this series (see the first and second) of articles to highlight the importance of looking beyond the simple question of “is the recruiting process meeting its goals?” and to develop a process for identifying failure points at each step in your recruiting process. Unfortunately, most recruiting leaders have no formal process for pinpointing their problems.

As a result, I have also provided a long list of failure point identification tools and approaches that I have found to be helpful to me when I’ve been asked to audit a corporate recruiting process. Of course, every organization needs to select the tools that best fit their needs and their culture but the key learning is to have in place a formal process for periodically identifying specifically where your process is failing. This might require you to become a CSI-type investigator but at least you now have a long list of tools that you can use to quickly and accurately pinpoint though your problem steps.

We have some great hits from the community so let’s get started!

Here’s what’s going on in the ERE community this week:

1. The dreaded employee referral?
2. Internet background checks on prospective hires
3. Being yourself and why it works
4. Is the 6.2% payroll tax incentive helping to hire more unemployed people?
5. How recruiters should respond to a vague sales manager
6. Featured group of the week: New England recruiters

1. The dreaded employee referral?

Simon Meth writes: “Popular opinion is that employee referrals are the #1 source of hire in a corporate environment. I believe that to be true. But are employee referrals the #1 source of quality hires? I doubt it! Following are some thoughts from my own experience. Your mileage may vary.

Can employee referrals backfire? Are they the number one source of quality hires?

2. Internet background checks on prospective hires

A community member asks, “Are any of you on the corporate or in-house recruitment side doing routine Internet searches on prospective candidates or new hires? If so, do you have legal counsel support for it? And, how is it going? I have been tasked by the VP of HR at my site to look into this. I have consulted two attorneys — their opinion is that its okay to do but know that the info is not reliable and should not be used for a go/no go decision. Our third party background check company won’t touch it either. I’m interested to know if any of you out there are doing it and if so, what kind of results are you getting?

Do you do Internet background checks? Let this member know in the forum.

3. Being yourself and why it works

Matthew Hakaim writes, “My ‘perfect world’ had just crumbled in a matter of seconds. I was faced with the need to find new work, and I had no clue what I wanted to do. A few weeks later I was introduced to a guy who owned a recruiting company that specialized in finding talent for the video game industry. After a few short conversations I had accepted a job at their firm as a recruiter. There was a slight hurdle to overcome though. I was not a gamer by any stretch of the imagination and I really had no clue what a recruiter was.

I like the simple message: be yourself and life will be a lot easier!

4. Is the 6.2% payroll tax incentive helping to hire more unemployed people?

Maureen Sharib posted some interesting information in the Compensation and Benefits group: “Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. More here.

I have to wonder if these incentives will actually help employ more unemployed people. Is this the start to recruiters preferring active candidates over passive ones?

5. How recruiters should respond to a vague sales manager

Lee Salz started an interesting conversation in the Ask the Sales Hiring Expert group: “Sales managers are infamous for asking recruiters to find “great sales people.” Yet, that isn’t enough information to surface the right candidates. What should recruiters do so they don’t waste time spinning their wheels?

What’s the best way to nail down criteria for sales people from sales managers?

6. Featured group of the week: New England recruiters

The New England recruiters group is a networking group based around the states of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut. While it has been dormant for some time, we’ve started to revitalize the community through some discussions and e-mails about where to take the group. Take a look at our most recent discussion about using Facebook as a recruiting tool or join up and start your own discussion!

To see what else you’ve been missing, check out the ERE community.

Did you know that ERE has a group on LinkedIn? Check it out!

Here’s what’s going on in the ERE community this week:

1. The only danger in mobile recruiting?
2. Is your recruiting quaint?
3. Talent acquisition metrics
4. The big disconnect
5. Whose responsibility is it to check references?
6. Featured group of the week: Recruiting leadership forum

1. The danger of mobile recruiting? Not doing it.

Kristine Rhodes writes “Recently, I asked my client partners why they declined using mobile marketing as part of their recruiting strategy in 2009. I heard everything from “It’s just hype,” to “It’s intrusive,” to my personal favorite “It’s dangerous.” So I thought I’d share some quick facts to dispel the myths, and provide a few ways to ease into a mobile strategy.

Are you trying to get mobile recruiting initiatives completed this year? Take a look at Kristine’s post and add your own comments.

2. Is your recruiting quaint?

Kristen Fife argues that having a tool that only works in one type of browser sends the wrong message. She states: “It’s 2010, guys. I live in Microsoft’s backyard and a good number of the people *I* know use Firefox at home and work. Not to mention Chrome. And Safari (hellooooooooo, remember the new iPad that was unveiled a few weeks ago?) as well as a host of smaller browsers such as Flock, Opera, etc.

Is making an application cross-browser compatible not realistic or is it necessary in a multiple browser world?

3. Talent acquisition metrics

Ritvik Bhawan outlays the different types of metrics a person should use if they are looking to track their progress. He breaks them down into three categories:

• Workforce planning and acquisition strategy
• Applicant sourcing and candidate management
• Applicant tracking and final joining

Take a look and see if any of your favorite metrics are left out.

4. The big disconnect: how recruiters earn their fee

Barbara Goldman tells a story about how she worked behind the scenes as a third-party recruiter to secure a candidate in a way that the client didn’t see. She writes, “After my candidate started, and I called to collect my fee, the president of the company asked me how I had persuaded him to even interview. You see, unknown to me, he was a target candidate for the company. They knew him. Three recruiters had tried to drag him in. He said no. Now, they finally got their man.

What are your thoughts? Is a third-party recruiter’s value disguised?

5. Whose responsibility is it to check candidate references?

A member of the independent recruiters group on ERE asks: “I am preparing to enter the field as a contingent fee recruiter specializing in health care, and I have a couple of burning questions. [Whose] responsibility is it to verify a candidate’s references? Would not the employer always want to do this for themselves even if you do it? My other question is how should this issue be  handled (worded) in my contract?

Got some feedback for him? Leave a comment for him in the group.

6. Featured group: Recruiting leadership forum

The recruiting leadership forum was created by John DePolo and the objective of the group is to “share best practices in recruiting leadership with members, and brainstorming new ideas that will help companies improve their processes.” A couple recent posts include how people are approaching the hiring of former prisoners and non-employee referral programs. Are you a leader in recruiting? Check this group out.

To see what else you’ve been missing, check out the ERE community.