A different sort of hiring challenge is faced by Re Vera Services, a start-up in Pensacola, Florida, that provides verification services for higher educational institutions. Steve Nolen, a stocky, dark-haired graduate of the United States Naval Academy and MIT’s MBA program, met us in a conference room, while his co-founder and wife, Carla, tended to their five-week-old in the back office, listening to our conversation by speakerphone.
“Our business,” Steve began, “is to validate the information that admitted students listed on their applications to top MBA programs. Suppose, for example, somebody says they worked for Goldman Sachs as an associate, or they have a degree in philosophy from Princeton. We make sure that information is correct, and the only way to do that for sure is go to the source.”
This piqued the interest of all of us since that’s our students he’s talking about!
“We’ll get a list from a school of students and the information they want verified. Then it’s dial and smile. We employ seventeen people, and we’re calling all over the world.”
“Can you give us an example of what sorts of problems you find?” Scott asked as Carla, casually dressed and with long blond hair, joined us in the conference room after the baby fell asleep, the speakerphone acting as a baby monitor.
“Different schools are looking at different things,” Carla replied. “Let’s say the student listed that he worked at Deutsche Bank as an analyst. We might find out he was an intern/ analyst, and that might be relevant for some schools. We find a lot of degrees that aren’t completed; maybe they finished all the credits, but didn’t apply for graduation or pay their final bill.”
“This is really interesting,” Paul said, eyebrows raised. His mind was obviously wandering back to his home campus in California.
Mike knew exactly what Paul was thinking. “You want to ask about a specific student you had, don’t you? Me too! I had this guy last semester . . . . He surely must have falsified something to get in!”
The business, which was started in 2005, grew out of a job Carla took in the MIT MBA admissions office while Steve was a student. “They were just piloting their verification program,” Steve explained, “and she spent the summer building the process. Then they handed it off to a large company to do the actual verifying, and the amount of information that came back was really overwhelming.”
Carla explained that this wasn’t because the amount of application fraud was itself overwhelming, but rather that the verifier was flagging every single mismatch— no matter how small. “Suppose a student working at a bank applies to business school in November, and he puts $ 105,000 as his best guess for total pay once annual bonuses are released in December. Then the bonus comes out, and the actual annual pay is $ 103,000. A discrepancy like that was getting flagged, and then the admissions staff would have to put resources into figuring it out. For a large MBA class— Harvard admits maybe nine hundred students annually— the admissions team simply doesn’t have the resources to follow up on seven hundred flags.”
“We work with the admissions office to get a sense of what they think is material, and then we limit the flags to the issues they really ought to be taking a close look at,” Steve said.
This discussion raises the following question: What’s the right number of flags? Too many flags and you’re overwhelming the admissions staff with trivial details. But with too few flags— meaning important mismatches aren’t being caught— well, you get students like the one Mike was complaining about. In an extreme case, an unflagged application could do serious damage to the school’s reputation. It would be difficult, perhaps impossible, for the client to know whether they’re getting too few flags, and this means the service provided by Re Vera is a great example of credence good. As Carla and Steve are acutely aware, reputation and trust are especially important in markets for credence goods, and Steve summarized the issue well: “Schools have to trust that you’re going to do what you need to do to conduct the verification.”
Maintaining clients’ trust means that Re Vera can ill afford mistakes, and this fact has important implications for hiring strategy. Steve described the job as “essentially a call-centre employee; you could get somebody for minimum wage, maybe a little more.” But the extreme quality imperative means Re Vera can’t survive with the average call-centre employee; instead, it needs a 99th-percentile call-centre employee. “We overpay for our people,” Steve said. “We offer an hourly rate that’s twice what we should be paying.”
Scott nodded but then asked. “Why do you say you ‘overpay’? If you buy a Mercedes because you really value the quality, did you overpay just because you could have gotten a Camry for less?”
Steve thought for a minute. “I see what you’re saying. A lot of our employees are well educated. They’re stay-at-home moms with master’s degrees or further. At times I think we even underpay relative to the quality of the person we get.” “I totally agree,” said Carla.
The contrast between Southside Family Fun Centre, which hires at minimum wage, and Re Vera, which could fill openings at minimum wage but chooses not to, brings up an important point: It pays to be strategic about where to position on the employee quality /wage scale. While too-high wages can certainly eat into an employer’s profits, it’s probably not the case that employers should be seeking the cheapest possible help. Why? Well, you get what you pay for, and the cheapest possible employee probably wouldn’t get much done. Conversely, while productivity is good, it’s probably not the case that the most productive possible employee is the one you want; highly talented people can be expensive to retain.
If the right employee isn’t the cheapest but also isn’t the most productive, then who is the right employee?
The optimal trade-off between quality and wages happens when the difference between productivity and wage is maximized. And this maximize-the-difference quality level is likely to be at a different place for different companies. At Re Vera, for example, minimum-wage employees would be inexpensive but would probably require heavy supervisory oversight in order to hit the company’s quality standards. And the cost of this supervisory overhead might well be larger than the savings associated with hiring at this lower wage. Steve and Carla Nolen are, as a result, best off with more expensive but more capable employees. Southside Family Fun Centre could probably hire more able employees by paying a dollar an hour above minimum wage. But how much would this additional ability be worth? If the job is to clean tables and a better (and more expensive) employee cleans tables 30 percent faster, will this somehow translate to higher revenues? For Richard Shuster, a faster table cleaner may not be worth the additional cost.
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