Many organizations I respect are very risk-averse when hiring, and for good reasons. Making a bad hiring decision is extremely costly, as it means running another hiring round, paying for work that isn’t useful, and diverting organisational time and resources towards trouble-shooting and away from other projects. This leads many organisations to scale very slowly.
However, there may be an imbalance between false positives (bad hires) and false negatives (passing over great candidates). In hiring as in many other fields, reducing false positives often means raising false negatives. Many successful people have stories of being passed over early in their careers. The costs of a bad hire are obvious, while the costs of passing over a great hire are counterfactual and never observed.
I wonder whether, in my past hiring decisions, I’ve properly balanced the risk of rejecting a potentially great hire against the risk of making a bad hire. One reason to think we may be too risk-averse, in addition to the salience of the costs, is that the benefits of a great hire could grow to be very large, while the costs of a bad hire are somewhat bounded, as they can eventually be let go.
the costs of a bad hire are somewhat bounded, as they can eventually be let go.
This depends a lot on what “eventually” means, specifically. If a bad hire means they stick around for years—or even decades, as happened in the organization of one of my close relatives—then the downside risk is huge.
OTOH my employer is able to fire underperforming people after two or three months, which means we can take chances on people who show potential even if there are some yellow flags. This has paid off enormously, e.g. one of our best people had a history of getting into disruptive arguments in nonprofessional contexts, but we had reason to think this wouldn’t be an issue at our place… and we were right, as it turned out, but if we lacked the ability to fire relatively quickly, then I wouldn’t have rolled those dice.
The best advice I’ve heard for threading this needle is “Hire fast, fire fast”. But firing people is the most unpleasant thing a leader will ever have to do, so a lot of people do it less than they should.
One way of thinking about the role is how varying degrees of competence correspond with outcomes.
You could imagine a lot of roles have more of a satisficer quality- if a sufficient degree of competence is met, the vast majority of the value possible from that role is met. Higher degrees of excellence would have only marginal value increases; insufficient competence could reduce value dramatically. In such a situation, risk-aversion makes a ton of sense: the potential benefit of getting grand slam placements is very small in relation to the harm caused by an incompetent hire.
On the other hand, you might have roles where the value scales very well with incredible placements. In these situations, finding ways to test possible fit may be very worth it even if there is a risk of wasting resources on bad hires.
It looks like there are two people who voted disagree with this. I’m curious as to what they disagree with. Do they disagree with the claim that some organizations are “very risk-averse when hiring”? Do they disagree with the claim that “reducing false positives often means raising false negatives”? That this has a causal effect with organisations scale slowly? Or perhaps that “the costs of a bad hire are somewhat bounded”? I would love for people who disagree vote to share information regarding what it is they disagree with.
Forgive my rambling. I don’t have much to contribute here, but I generally want to say A)I am glad to see other people thinking about this, and B) I sympathize with the difficulty
The “reducing false positives often means raising false negatives” is one of the core challenges in hiring. Even the researchers who investigate the validity of various methods and criteria in hiring don’t have a great way to deal with it this problem. Theoretically we could randomly hire 50% of the applicants and reject 50% of them, and then look at how the new hires perform compared to the rejects one year later. But this is (of course) infeasible. And of course, so much of what we care about is situationally specific: If John Doe thrives in Organizational Culture A performing Role X, that doesn’t necessarily mean he will thrive in Organizational Culture B performing Role Y.
I do have one suggestion, although it isn’t as good of a suggestion as I would like. Ways to “try out” new staff (such as 6-month contacts, 12-month contracts, internships, part-time engagements, and so on) can let you assess with greater confidence how the person will perform in your organization in that particular role much better than a structured interview, a 2-hour work trial test, or a carefully filled out application form. But if you want to have a conversation with some people that are more expert in this stuff I could probably put you in touch with some Industrial Organizational Psychologists who specialize in selection methods. Maybe a 1-hour consultation session would provide some good directions to explore?
I’ve shared this image[1] with many people, as I think it is a fairly good description of the issue. I generally think of one of the goals of hiring to be “squeezing” this shape to get as much off the area as possible in the upper right and lower left, and to have as little as possible in the upper left and lower right. We can’t squeeze it infinitely thin, and there is a cost to any squeezing, but that is the general idea.
Many organizations I respect are very risk-averse when hiring, and for good reasons. Making a bad hiring decision is extremely costly, as it means running another hiring round, paying for work that isn’t useful, and diverting organisational time and resources towards trouble-shooting and away from other projects. This leads many organisations to scale very slowly.
However, there may be an imbalance between false positives (bad hires) and false negatives (passing over great candidates). In hiring as in many other fields, reducing false positives often means raising false negatives. Many successful people have stories of being passed over early in their careers. The costs of a bad hire are obvious, while the costs of passing over a great hire are counterfactual and never observed.
I wonder whether, in my past hiring decisions, I’ve properly balanced the risk of rejecting a potentially great hire against the risk of making a bad hire. One reason to think we may be too risk-averse, in addition to the salience of the costs, is that the benefits of a great hire could grow to be very large, while the costs of a bad hire are somewhat bounded, as they can eventually be let go.
Some interesting stuff to read on the topic of when helpful things probably hurt people:
Helping is helpful
My understanding is that minimum wage literature generally finds the minimum wage is good on net
Helping is hurtful
Banning background checks increases racial discrimination by Matt Yglesias
I sense that making no-fault firing more difficult is similarly damaging because orgs are scared to hire
This depends a lot on what “eventually” means, specifically. If a bad hire means they stick around for years—or even decades, as happened in the organization of one of my close relatives—then the downside risk is huge.
OTOH my employer is able to fire underperforming people after two or three months, which means we can take chances on people who show potential even if there are some yellow flags. This has paid off enormously, e.g. one of our best people had a history of getting into disruptive arguments in nonprofessional contexts, but we had reason to think this wouldn’t be an issue at our place… and we were right, as it turned out, but if we lacked the ability to fire relatively quickly, then I wouldn’t have rolled those dice.
The best advice I’ve heard for threading this needle is “Hire fast, fire fast”. But firing people is the most unpleasant thing a leader will ever have to do, so a lot of people do it less than they should.
One way of thinking about the role is how varying degrees of competence correspond with outcomes.
You could imagine a lot of roles have more of a satisficer quality- if a sufficient degree of competence is met, the vast majority of the value possible from that role is met. Higher degrees of excellence would have only marginal value increases; insufficient competence could reduce value dramatically. In such a situation, risk-aversion makes a ton of sense: the potential benefit of getting grand slam placements is very small in relation to the harm caused by an incompetent hire.
On the other hand, you might have roles where the value scales very well with incredible placements. In these situations, finding ways to test possible fit may be very worth it even if there is a risk of wasting resources on bad hires.
It looks like there are two people who voted disagree with this. I’m curious as to what they disagree with. Do they disagree with the claim that some organizations are “very risk-averse when hiring”? Do they disagree with the claim that “reducing false positives often means raising false negatives”? That this has a causal effect with organisations scale slowly? Or perhaps that “the costs of a bad hire are somewhat bounded”? I would love for people who disagree vote to share information regarding what it is they disagree with.
Forgive my rambling. I don’t have much to contribute here, but I generally want to say A)I am glad to see other people thinking about this, and B) I sympathize with the difficulty
The “reducing false positives often means raising false negatives” is one of the core challenges in hiring. Even the researchers who investigate the validity of various methods and criteria in hiring don’t have a great way to deal with it this problem. Theoretically we could randomly hire 50% of the applicants and reject 50% of them, and then look at how the new hires perform compared to the rejects one year later. But this is (of course) infeasible. And of course, so much of what we care about is situationally specific: If John Doe thrives in Organizational Culture A performing Role X, that doesn’t necessarily mean he will thrive in Organizational Culture B performing Role Y.
I do have one suggestion, although it isn’t as good of a suggestion as I would like. Ways to “try out” new staff (such as 6-month contacts, 12-month contracts, internships, part-time engagements, and so on) can let you assess with greater confidence how the person will perform in your organization in that particular role much better than a structured interview, a 2-hour work trial test, or a carefully filled out application form. But if you want to have a conversation with some people that are more expert in this stuff I could probably put you in touch with some Industrial Organizational Psychologists who specialize in selection methods. Maybe a 1-hour consultation session would provide some good directions to explore?
I’ve shared this image[1] with many people, as I think it is a fairly good description of the issue. I generally think of one of the goals of hiring to be “squeezing” this shape to get as much off the area as possible in the upper right and lower left, and to have as little as possible in the upper left and lower right. We can’t squeeze it infinitely thin, and there is a cost to any squeezing, but that is the general idea.
.
it is from a textbook: Industrial/Organizational Psychology: Understanding the Workplace, Paul E. Levy