An employee referral program is a must for organizations looking to increase the number of high-quality applications in a tight labor market.
From job boards to networking events to social media, there are endless channels for finding new talent. But if you want to make great hires, it’s the quality rather than the quantity of applicants that matters. When it comes to ROI, few recruitment techniques perform as well as employee referrals.
Employee referrals result in faster hires, come at a low cost, and make the screening process easier on hiring managers. Here, we’ll dive deeper into the importance of referrals and explain how to turn your employee referral program into a powerful recruitment tool.
Why Employee Referrals Matter
Employee referrals are good for business in more ways than one.
According to a report from LinkedIn, hiring takes an average of 55 days when relying on traditional recruitment techniques like job boards. Referred candidates, on the other hand, take just 29 days to hire.
Referred candidates also stay at their jobs longer. In that same study, 46% of referred hires stayed for at least a year after being hired, compared to 33% of people hired through career sites and 22% hired through job boards.
Referred candidates have better job acceptance rates; saying ‘yes’ to the offer between 2% and 6% more frequently than their non-referred counterparts.
Finally, your existing standout team members are a gold mine for reaching other top talents. It’s a well-documented phenomenon that high performers refer other high performers—they have high standards, so it makes sense that they’d only consider the cream of the crop among their professional circle when referring candidates to their company.
Given the many benefits and few downsides of referrals, we’d argue that every employer should take advantage of an employee referral program.
What is an Employee Referral Program?
An employee referral program is a strategy in which companies encourage existing employees to submit candidates for consideration for open positions. A structured referral program formalizes the process employees use to submit those referrals and adds one or more incentives that reward them for their submissions.
Formalizing the referral process provides clear direction for employees who might otherwise not bother handing in a referral. It saves you time by having an established system for accepting and reviewing referrals (i.e. having only one referral channel versus taking them by email, in writing, via a submission form, etc.)
Incentivizing the referral process ensures there’s something in it for employees who invest the time and effort into mining their personal and professional network for eligible candidates. Incentivizing also benefits the employer. When you establish that candidates are rewarded solely for referrals resulting in a hire, you’ll discourage the submission of frivolous referrals and encourage those that are actually a logical fit.
Having an official program helps keep referrals top-of-mind for busy workers. By regularly communicating the company’s job openings (more on this below), you’ll encourage a steady stream of candidate suggestions and help making referrals become a habit for your employees.
Benefits Of Employee Referral Programs
Expand your talent pool
Many employers fall into the habit of posting their openings on the same job boards and relying on the same sources they always do when seeking new candidates. An employee referral program can help you expand your talent pool, reaching applicants your job listing might not have come in front of otherwise. This is crucial to being able to hire in a tight labor market.
Reach passive candidates
If someone isn’t actively searching job listings, they won’t hear about your opening… that is, unless a friend lets them know about it. Employee referrals help you reach passive candidates who are difficult to identify. Passive candidates are often strong, loyal workers with successful track records, but they’re notoriously challenging to recruit.
Build employee engagement
When you turn to your employees for suggestions on who to hire, you show them that their input is valued. When they in turn make a referral, they’re investing in the success of the company. This creates a positive cycle of employee engagement, which helps improve retention of your existing workforce.
Make stronger hires
When you receive a referral, the candidate is already partially vetted. You’re starting out ahead of the game, which helps you hire faster and with greater accuracy. An employee referral program is an excellent resource for strengthening the quality of your hires overall.
Challenges of Employee Referral Programs
Despite the many upsides, employee referral programs aren’t without their share of challenges. You’ll want to consider these factors as you plan and implement your referral program.
Leadership buy-in
A referral program can only be successful if there’s buy-in at the top. The responsibility for promoting the program can’t fall solely on HR; leaders on all teams must be involved in actively encouraging referrals—not just for roles on their own team, but across the company.
Complexity
The best referral programs are easy to understand and easy to participate in. Don’t make employees jump through hoops to submit a referral. For smaller companies, an email-based referral program may be sufficient. The larger the organization, though, the more you may need technology infrastructure to support it. If you’re a large or enterprise company, consider using referral software or a cloud-based referral application.
Diversity detriments
A study by PayScale looked at the ways—both positive and negative—that referrals shape companies. One of the downsides they found was that referral programs don’t benefit women and minorities as much as they do white men. It is possible to run an employee referral program and still achieve a diverse workplace by prioritizing programs that promote diversity, attending career fairs in diverse areas and making inroads at schools with diverse student bodies.
Creating an Employee Referral Program That Actually Works
Now that we’ve established why a referral program is beneficial, let’s talk about how to turn yours into a powerful recruitment engine. It comes down to setting up a referral program that leadership understands, employees actually want to use and that’s as easy as possible for all involved.
Use the following employee referral program ideas to plan and execute a successful program in your organization.
1. Choose a channel and make it the standard for submitting referrals.
First, decide the appropriate scope of your program. Do you only want referrals on an occasional basis, or do you want a robust, perpetually running referral program? This scope will help determine the best channel to use for taking referrals.
You might use an online form, a paper form, email, or even text messages to accept referrals. Simple is best, so we advise picking one channel or two at most to avoid confusion and streamline the submission process.
Then, create clear and straightforward instructions for how employees should use the submission channel, what the incentives are, and how and when incentives will be awarded. Distribute the instructions company-wide and make them available wherever you house other key personnel documents.
2. Strategize the right incentives.
Cold hard cash is still a great motivator for referrals, but it’s not the only one. Take some time to gather feedback from managers about what motivates employees. Time off and company-sponsored perks, like concert tickets and free meals, can be good options.
One downside of cash incentives is that they can take a long time to materialize, such as waiting 90 days before paying out for a referred new hire. Consider implementing some low-cost, immediate incentives (a $10 Starbucks gift card, for example) that give employees a more instant reward for their successful referral and help maintain interest in the program. You might also hold a raffle monthly or quarterly for all employees who submitted referrals, regardless of whether they resulted in a hire.
Finally, consider a sliding scale of incentives based on the role. It’s logical for executive-level or highly specialized roles to come with a higher referral bonus than entry-level ones.
3. Assign ownership and set KPIs.
Don’t just set it and forget it. In order for your employee referral program to succeed, it needs a designated owner who will steer the ship and clearly define goals to measure progress.
Here are some metrics to consider when establishing referral program KPIs:
- Referrals submitted per month
- Referrals submitted per employee
- Referrals submitted per job opening
- Interviews per month
- Interviews per referral
- Interviews per job opening
- Hires per referral
- Referrals versus all other recruitment channels
4. Spread the word.
Though one person or department should be in charge of overseeing your employee referral program, spreading the word about it falls on all members of leadership.
First, ensure managers and department heads are educated about how to use the program. Then, work to integrate it into your everyday operations. Department heads might schedule five minutes at the top of team meetings to talk about the referral program. HR might send an email blast every Friday with current openings. You might give the referral program its own section in your new hire onboarding process. Promote it from the start, and do it frequently.
This leads to our next tip: get specific about the roles you’re looking to fill. Simply making a blanket ask for referrals won’t get you very far. Instead, share specific details about the role and the type of candidate you’re seeking to help your employees make appropriate connections.
5. Measure progress and share successes.
On a regular bases, check-in on the KPIs you set in step three; monthly or bi-monthly is a good frequency. Analyze what’s working and what could use improvements, then make tweaks to the program as needed.
Keep employees engaged by sharing success stories and spotlighting your top referrers. Sometimes recognition can be the biggest motivator of all to get employees involved. Also, close the loop on the results of referrals so employees aren’t left wondering what happened with the candidates they recommended.
In a report by CareerBuilder, 88% of employers with a referral program rated it higher than all other recruitment channels for the quality of new hires. By implementing or updating your own referral program using the tips above, you’ll enjoy the benefits of lower turnover rates, lower hiring costs, and higher quality candidates that will ultimately improve your company’s performance.
About 4 Corner Resources
We help companies like yours harness the power of direct recruitment to find and hire top talent. For those hard-to-fill roles, our headhunters tap our deep network of professional relationships to identify candidates with the perfect set of skills—including those elusive passive candidates.
With percentage-based fees, flat fees for volume hiring, and retained search agreements, we have a program that aligns with your needs and budget. We offer temporary staffing and contract-to-hire services, as well.
Contact us today and let our friendly recruiting team show you how 4 Corner Resources is different from your run-of-the-mill staffing firm. We look forward to meeting you.
Resources and sources
- https://business.linkedin.com/content/dam/me/business/en-us/talent-solutions/resources/pdfs/new_employee_referral_programs_FINAL.pdf
- https://www.glassdoor.com/research/interview-sources/
- https://www.linkedin.com/business/talent/blog/talent-engagement/data-referrals-strongly-impact-retention-and-depend-on-employee-performance
- https://www.4cornerresources.com/wp-content/uploads/2020/03/careerbuilder_referral_madness_ebook.pdf
