Personnel Risk Management: A New Frontier for Talent Acquisition

By John W. Jones of Vangent Inc.

With the spotlight on winning the war for talent, hiring managers are under increased pressure to quickly deliver high caliber employees to their organizations. Whether it is seasonal hiring spikes to meet sales demands, plugging openings in high turnover positions, mass hiring to achieve production requirements, or even securing high potential talent from prestigious business schools, talent acquisition managers are expected to fulfill the demands placed on them by the business in a timely and accurate manner.

Unfortunately, sometimes the “any warm body” phenomenon is operative in order to consistently meet the nearly impossible recruitment and hiring demands. More typically, an organization might screen candidates for their work experiences and job knowledge but will overlook their job related attitudes associated with integrity and reliability.

Many corporations are currently relying too heavily on metrics related to a technology-enabled talent acquisition function, including increasing speed to hire, reducing cost of hire, and reducing the total number of open positions. A common thread with these operational measures is that they are all intrinsically focused on the staffing function and quantify only those metrics up to the point of hire. The inherent problem with solely relying on these operational efficiency measures, however, is that they do not take into account business metrics associated with the actual on-the-job performance of the hired employees across the employees' lifecycle. With all of the aforementioned pressures and functionally specific measures, it's not surprising that organizations struggle with downstream costs.

The High Cost of a Bad Hire

There are significant costs related to inadequate screening of personnel for job-related integrity and reliability risks. For example the cost for dishonest employees that engage in theft has been estimated to be approximately $1,307 on average per employee theft incident or, a total annual loss of $19 billion in the retail sector alone. Employees that do not adhere to safety guidelines risk involvement in workplace accidents and/or workers' compensation claims which may cost an average of $3,048 per workers' compensation claim.

Employees at risk for illegal on-the-job substance use have been shown to have three times more sick days, three times the tardiness rate, three times more accidents, and are five times more likely to file workers' compensation claims than individuals who do not use illegal substances ($1,500 average cost per drug using employee). And when considering both direct and indirect costs associated with premature turnover (e.g. job advertisement fees, background screening, and new hire training time), the costs average around $3,500 per employee for non-exempt positions. Finally, research suggests that more employee crime and deviance can be expected during prolonged economic downturns.

Aligning Talent Acquisition with Risk Management

While talent acquisition professionals are expected to be hiring efficiency experts, employment brand managers, and deal closers, another role now awaits them: Personnel Risk Manager. According to BusinessDictionary.com Risk Management is defined as " Policies, procedures, and practices involved in identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks." While Risk Management is typically associated with insurance, finance, strategic decisions, and project management, since employees are responsible for a significant portion of organizational capital, Personnel Risk Management takes on a role of greater importance.

Though corporations spend fortunes on physical protection devices, sophisticated surveillance systems, and security guards to protect their assets, these measures, for internal protection purposes, are largely reactive. As unscreened employees pose a certain level of continual and potentially large risk to the organization, it becomes imperative to minimize these risks. These types of risks are best minimized by measuring - at the onset of the hiring process - the propensity of potential employees to engage in counterproductive behavior that would put the organization at risk. By using proactive, preventative risk management strategies such as validated pre-employment integrity assessments and criminal background checks, there is less pressure on the more reactive approaches like surveillance systems.

Corporate risk management and security managers typically rely on recruiters to screen job applicants entering the corporate workforce for a predisposition to engage in on-the-job theft, violence, illicit drug abuse, and other types of workplace crime or counterproductive behavior (e.g., unsafe or risky actions). Unfortunately, many human resource departments only screen job candidates for the job-related knowledge, skills, and abilities needed to perform their job successfully, and not for their propensity to engage in on-the-job deviance. Accordingly, there is a need to reliably screen candidates for their job-related skills and abilities, as well for their predisposition to be security risks.

By employing a tightly integrated two phase approach, these holistic objectives can be accomplished. In "Phase I", job applicants would be screened for the required knowledge, skills, and abilities (KSAs) to successfully perform a specified job. These KSAs are typically assessed by (1) reviewing an application and resume, (2) conducting an employment interview, and (3) administering a brief skills and abilities test. The "Phase 2" evaluation would be based on a scientifically sound risk management assessment. That is, a valid and reliable integrity assessment would be utilized to allow the human resource department to also screen their job candidates for attitudes toward theft, illicit on-the-job drug abuse, turnover risk, poor service orientation, and other forms of unproductive work behaviors. By focusing on both job-related KSAs and personnel risk factors like theft proneness and unreliable work performance tendencies, human resource professionals are actually expanding the talent acquisition process to include personnel risk management assessment strategies.

Case Study: Hiring Talented but Low-Risk Employees

As stated above the best personnel risk management strategies are centered around a consistent, appropriate, and legally-defensible integrity-based testing practice. The case study in this section illustrates how one retailer is already embracing personnel risk management as a new frontier for contemporary talent acquisition.

The challenge for this major retailer was to hire talented employees who would not engage in counterproductive workplace behaviors such as on-the-job theft, vandalism, and general delinquency. Overall, it was not enough to simply and quickly hire applicants who possessed attributes (i.e. KSAs) necessary to perform required job tasks (i.e. Phase 1 screening). It was also necessary to hire applicants who would consistently act in an honest and trustworthy manner around company assets, co-workers, customers, and supervisors (i.e. Phase 2 screening).

To establish a strategic advantage in the industry, the retailer adopted a two-phase hiring process. The first phase consisted of a web-based application event which identified applicants who possess the background and the basic knowledge, skills, and abilities needed to perform the job. A second phase was added, a preemployment risk management assessment, which was completed by applicants who performed well on the Phase 1 assessment and who were being considered for employment. Risks measured by the Phase 2 assessment included job-related honesty attitudes, theft potential, illicit drug use, and reliable work background. If an applicant passed this Phase 2 risk management assessment, he/she progressed to a formal background check and finally a drug test.

A number of positive program evaluation metrics were obtained by using this two-phase selection model and are summarized below. These metrics were a reflection of this organization's attempt to evolve into an organization that viewed recruiting as a decision science.

• In excess of 35,000 applicants in 2007 who moved past the Phase 1 selection process were flagged as "Not Recommended" for employment by the risk management assessment in the second phase because of their attitudes and admissions surrounding job related integrity, theft, drug use, anti-social behavior, and unreliable work background. These were applicants who may have been hired based on favorable Phase 1 assessment scores but were identified as high risk applicants based on their Phase 2 risk scores.

• Applicants made nearly 65,000 job-related admissions of counterproductive work behaviors on the Phase 2 risk management assessment.

• The retailer conservatively realized estimated downstream net savings of nearly $6 million resulting from using the assessment to screen out high-risk job applicants. This translated into a 507% ROI. A dollar amount was not placed on the ability of the Phase 2 risk management assessment to preserve the company's "living brand" by avoiding negative public relations events and negligent hiring lawsuits.

Conclusion

Research and case studies, like the one above, conducted over many years consistently show that employees at high risk to engage in workplace counterproductivity can be enormously costly to an organization. This article convincingly makes the case that corporations need to consistently include a personnel risk management strategy in their talent acquisition process in an effort to help contain these costs, reduce risk management metrics such as retail shrinkage, and enhance profitability. One strategy for embracing this new frontier is to use a two-phase selection model whereby job candidates are screened first to ensure they have the proper knowledge, skills, and abilities for the position of concern (Phase 1 screening). Next, those applicants who pass Phase 1 need to be assessed with a scientifically sound risk management assessment during a Phase 2 assessment to ensure that they will exhibit the highest level of job-related integrity and dependability once hired. Such a multiphase selection strategy will ensure that the talent acquisition process supports not only the needs of the recruitment and staffing experts, but also the very real needs of the corporate risk managers and loss control specialists.

References:
National Retail Security Survey
Workers Compensation Research Institute
National Institute of Drug Abuse
Society of Human Resource Management
Police Executive Research Forum

Human resource professionals need to make sure that the preemployment risk assessments they choose have documented research confirming that the assessment can both predict and reduce employee theft and deviance. General personality tests have sometimes been used to assess employee risk potential, yet the research suggests that these types of generic instruments were never originally developed for this type of risk management application.