Hiring the Right People

1
Hiring the Right People

• Example 1 Jimbo Corp. has several openings for
  new managers. After advertising in the paper,
  the HR Department takes in 400 applications for
  every position. Is there anything that they can
  do in the future to reduce the load of looking at
  all of these applications?
• Example 2 Lisa Corp. has numerous openings for
  individuals to do cold calling. The HR Dept.
  has a hard time filling the jobs. There is a
  high turnover rate. It is suggested that they
  should not describe the job as selling so that
  they can get more applicants. What should they
  do?

2
Hiring the Right People

• Often workers know more about their own ability
  and tastes than the firm does

• We sometimes expect ADVERSE SELECTION in hiring -
  the wrong workers are attracted to positions

• We can also get adverse selection in retirements
  the wrong workers take early retirement

3
Hiring the Right People

• How does the firm minimize adverse selection?

• Use credentials

• Use contingent compensation

• Use pay for performance
• Realistic job interviews

4
Hiring the Right People

• Credentials mitigate adverse selection before
  hiring through signaling or screening

• The credential must be correlated with job
  performance

• Obtaining the credential must be relatively easy
  for well-qualified workers, but difficult for
  others. Examples?

5
Hiring the Right People

• Education is probably the most important
  credential. Other examples?

• With small differences in earnings, small
  differences in education indicate large
  differences in ability - if the return to a
  credential is small, why invest?

6
Hiring the Right People

• Contingent contracts attempt to exploit
  self-selection by making compensation contingent
  on performance

• The best example of contingent contracts is a
  probationary period. Others?

7
Hiring the Right People

• Using probationary periods for self-selection is
  more important when
• Unskilled workers have few good alternatives
• It is difficult to distinguish a skilled from an
  unskilled worker in a short period of time.

8
Hiring the Right People

• Interviewers often have the wrong incentives when
  they are judged by the number of persons who
  accept the job offer
• What might be better?

9
Hiring the Right People

• Pay for performance can serve the same
  self-selection mechanism
• To get better workers, you must be ready to pay
  for them!
• Adding a probationary period, or making pay
  contingent on performance increases monitoring
  costs and increases the price for a given quality
  worker. It may not be worth it.