Talent Assessment

What is a talent assessment?

Talent assessment (evaluation of suitability, potential analysis) describes the structured evaluation of a person's skills, working behaviour and development potential against requirements that were set before the evaluation. What characterises it is not a particular tool but the structure: the same requirements, the same tasks and the same rating scale for everyone assessed.

The assessment is used in selecting external applicants, in promotions, in filling leadership roles and in succession planning. It is carried out by the HR department or an HR business partner together with the line managers. In transactions, it appears as an evaluation of the management by investors or buyers. Quality requirements for occupational aptitude assessment, that is, the professional measurement of occupational suitability, are described in Germany by the standard DIN 33430; its application is voluntary.

Requirements analysis as the foundation

It starts with the question of what the role actually demands. From the tasks, goals and critical situations of the position, three to five requirements are derived, for example setting priorities, conducting difficult conversations, exercising technical judgement or building a team. For each requirement, a description is given of how good and weak behaviour can be recognised. These behavioural anchors make ratings comparable and justifiable later.

Methods and building blocks

• Structured interview: the same questions for everyone, along the requirements, with questions about past behaviour and about the approach taken in described situations.
• Work sample: a realistic task from the future working day that shows directly how someone works.
• Case study or role play: a leadership situation that is acted out, for example a conversation about a performance problem.
• Assessment centre: a combination of several exercises with several observers, above all for leadership and talent programmes.
• Psychometric tests: ability tests and personality questionnaires, only as a supplement and only where quality has been demonstrated for the purpose in question.

Aptitude diagnostics assumes that structured methods predict later performance better than unstructured conversations. In an unstructured conversation, how likeable someone appears has a strong influence. The first impression colours further perception, and people who resemble the assessors are more easily regarded as competent. Structure does not fully offset these effects but limits them, above all when several people first rate separately and only then discuss together.

Legal limits in Germany

Equal treatment

The German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG) prohibits discrimination on the grounds named in Section 1 AGG, for example sex, age, disability or ethnic origin. If applicants show indications of discrimination, the employer must prove that no breach has occurred (Section 22 AGG). Rejected applicants must assert claims for damages or compensation in writing within two months of receiving the rejection (Section 15(4) AGG). Documented requirements and reasoned ratings are therefore also useful in legal terms.

Data protection

Under data protection law, the principle of necessity applies: only data that is needed for the decision on the appointment is collected. The results may be used only for this purpose (purpose limitation). The documents of rejected applicants are deleted as soon as no claims arising from the procedure are to be expected; a period of a few months after the rejection is common. Longer storage, for example for an applicant pool, generally requires consent. The legal basis and deletion period are best agreed by the company in advance with its data protection officer.

Software, AI and works council

Decisions that legally affect applicants or similarly significantly affect them, such as a rejection, may in principle not be made solely by automated means (Article 22 of the General Data Protection Regulation, GDPR). The European AI Act classifies AI systems for applicant selection and for decisions on promotions as high-risk systems with special obligations. AI systems intended to infer emotions from facial expressions or voice in the workplace are already prohibited, unless they serve medical or safety purposes. Where a works council (Betriebsrat), that is, an elected representation of the workforce, exists, personnel questionnaires and general assessment principles require its consent (Section 94 of the German Works Constitution Act, BetrVG). The same applies to guidelines on selection in recruitment, transfers and dismissals (Section 95(1) BetrVG).

Management assessment in a financing round and company acquisition

Investors and buyers assess the management as a separate area of review. In venture capital rounds, this is usually done through repeated conversations, the management presentation and reference calls. In majority acquisitions by financial investors, a formal management assessment by specialised advisers is common as part of due diligence, that is, the review of the company before the acquisition. The results help determine which roles are to be filled before or after closing and how the management is to be retained and given a stake.

For the company itself, a structured process gains weight after a financing round. The use of proceeds usually provides for numerous hires in a short time, and under time pressure the risk rises of mis-hires that trigger costs and ramp-up time a second time in the headcount plan.

Practical example

A software company fills the head of customer care after a financing round. Four requirements are set: setting priorities, conducting difficult customer conversations, managing with metrics and building a team. Each of the three people on the shortlist receives the same four interview questions and a case study on a major customer who is considering termination. Three assessors rate separately on a scale of 1 to 4 and justify each rating with an observed statement.

The applicant who seemed most convincing in the first conversation reaches an overall average of 2.6. On managing with metrics, that applicant scores only 1.7, because no single metric was drawn on in the case study. The third person scores 2.4, and a female applicant scores 3.2 across all requirements; she receives the offer. The decision is reasoned and documented. If a rejected applicant were to challenge the rejection, the separate ratings could be used to show that it rests on the requirements of the position. After twelve months, the company compares the ratings with actual performance and sharpens the questions and behavioural anchors.

Distinctions from related terms

• Performance appraisal: evaluates the performance shown in the current role. The talent assessment also asks whether someone is up to the requirements of a different or larger role.
• Management audit: evaluation of an entire management team by external advisers, often commissioned by buyers.
• Career planning: describes steps and paths; the assessment supplies the judgement on whether someone will reach the next step.

Common mistakes

• Requirements set after the fact. Criteria that are formulated only after the conversations merely justify a decision already made.
• Rating together instead of separately. The opinion voiced first shapes all those that follow.
• "Fits the team" as a criterion. Usually another word for similarity; it leads to uniform teams and is legally hard to justify.
• Tests as the decision. Personality questionnaires without demonstrated suitability for the purpose are unsuitable as the sole basis.
• Data protection and works council bypassed. Questionnaires and assessment principles without involving the works council and without a deletion concept create avoidable legal risks.

Frequently asked questions

Is a structured process worthwhile for small companies?

Yes, especially there. In a team of 15 people, a mis-hire weighs proportionately more heavily than in a company with 300 employees. Four requirements, one structured interview and one work sample are enough as a start.

Are personality tests permitted in applicant selection?

In principle yes, within limits. The test must be meaningful for the position, the data collected must be necessary for the decision, and the process must not discriminate. Such tests are not suitable as the sole basis for a decision.

Must the works council be involved?

Yes, if personnel questionnaires or general assessment principles are introduced; both require its consent. This also applies if questions and scales are stored in software. If the software can also evaluate the behaviour or performance of employees, a further co-determination right applies (Section 87(1) no. 6 BetrVG).

Do investors carry out a formal assessment of the management?

In venture capital rounds, rather rarely. In majority acquisitions by financial investors, by contrast, a formal management assessment is common.

The Roemer Capital view

In preparing a financing round, Roemer Capital compares the growth plan with the existing team. If roles that the plan presupposes are missing, for example a head of sales or finance, investors ask how and by when they will be filled. A defined selection process for key roles is a robust answer to that.

In a company sale, Roemer Capital prepares the management for the management presentation and the conversations with buyers in which the evaluation of the team takes place. Roemer Capital's contribution is to present each management member's role in the business plan clearly and verifiably, so that buyers measure the team by its tasks and not by its presentation alone.