Lemons and Cherries
In 1970 the economist George Akerlof wrote a famous paper called 'The Market for Lemons: Quality Uncertainty and the Market Mechanism'. It focused on how some used cars sold might be 'lemons' (slang for a car found to be defective after purchase) and others 'cherries' (cars that were sound). The problem, Akerlof noted, was that as buyers did not have as much information as sellers they ran the risk of buying a lemon and not a cherry.
The same happens in the recruitment environment. Hiring companies always have to take a chance when hiring; in many scenarios employees do turn out to be lemons. This results in major issues for an employer, not least the financial costs of a failed hire. So, here's what you'd typically do when buying a car - and how you can apply it to hiring.
- You’d decide what car you want and why – a people-carrier for your family, a Porsche because you fancy some fun, and so on. In the same way, it is imperative you have a clear understanding of what person you want to recruit and why; a job description helps but it is not enough on its own.
- You next choose where you’re going to buy the car from – a private sale, an auction, or a reputable dealer. There may be higher costs involved with a dealer but you’d hopefully get a better service and some shared risk (i.e. a warranty and full service). Apply the same to your search based on your needs and the risk involved – do you want to advertise, use your own network, engage a recruiter, or retain an executive search firm?
- Some people may only view one car but most people will compare different vehicles and choose their preferred option – I can’t stress enough how risky it is to interview only one candidate.
- Test-driving a car is an essential means of assessing what the car may be like in the long run, and it also helps you to spot any defects – so try and include a case study/scenario/presentation in your recruitment process and see how candidates perform.
- Cars will full service histories are considered safer purchases and I always look through the vehicle documents after a test drive. Candidates often have a range of supporting documents such as proof of earnings and reference letters. View them!
- We all see adverts from car data companies asking for us to call or text them to find out more about the vehicle in question… in the same way, calling at least two referees about a candidate can be really useful. Watch out for our guide to taking references which will be uploaded to the website in the next few weeks.
- When considering price and negotiation, looking at comparable car prices on the Internet and in magazines is often the norm, so as a hiring company find out what the current average market salaries are – don’t simply stick to your internal salary scales because ‘that’s what we have paid in the last five years’. Good recruiters are a great source of advice.
- Once you’ve agreed the purchase you go away, sort out the cash or bank transfer and pay on time, then collect the car on time. Do the same after a candidate verbally accepts an offer from you – get the paperwork to them on schedule and make their transition into your company as smooth as possible.