One of the best sources for finding talented individuals to join your company is right in front of your face, both physically and digitally. Your own employees hold the key. Yes. The very people who make your company the success it is today, can play an instrumental role in creating your future company success.
What is an employee referral program?
An employee referral program is an internal recruitment method employed by companies to identify potential candidates from their existing employees’ networks. An effective employee referral scheme encourages a company’s existing employees to recommend suitable candidates from their professional and social networks.
Companies that have effective employee referral programs in place, are more likely to experience accelerated business growth, improved company culture and a reduced spend on recruitment and talent acquisition.
I am not advocating that employee referral programs are the only way that a company should source talented individuals. But I am saying, that if your company does not have a formalised employee referral program in place, you are most certainly missing out on recruiting talented individuals (with minimal capital investment), who are more likely to succeed in your company.
You will notice that I use the word “effective” before the words referral program throughout this article. Any company can devise an employee referral program. But not every company can make it a success.
Referral programs are not new…but the concept is evolving with the help of technology
Employee referral programs are by no means a new concept. I have seen many and varied employee referral programs in action over the last 20 years. But the change is in the technology that is now available to harness, manage and track employee referrals.
Statistics show effective employee referral programs produce better-qualified candidates, who are more likely to get employed, quickly and economically. Referred employees tend to be happier and stay with your company for longer too.
Referral hires have greater job satisfaction and stay longer at companies – 46% stay over 1 year, 45% over 2 years and 47% over 3 years – The Undercover Recruiter.
Benefits of employee referral programs
Need more reasons to develop a compelling employee referral program? Here are some further benefits of an effective employee referral program:
- Increased new hire quality – employees refer quality candidates
- Improved new hire performance creates a more engaged employee after hire
- You benefit from higher retention rates when an employee is hired through a referral program
- Current employees are highly motivated to help someone they know perform well at your company
- Recognition is given to employees who refer candidates which makes them feel as though they are making a significant contribution to the performance of the company overall
As an aside, existing employees very rarely refer under-performers. In fact, you probably know from your own experience, that you always think long and hard before referring someone to the company you work within. After all, the referral impacts your reputation as well.
Elements of an effective referral program
Employee referral programs vary from company to company. The program you put in place will depend on your company ethos, program budget and the resources you have available to manage the program.
A effective employee referral program must:
- Encourage a spirit of shared accountability in driving the future success of your company
- Align with the values of your company
- Produce high quality, relevant candidate referrals
- Incorporate a process that is easy to follow
- Be driven by a reward system that motivates employee referrals
- Be delivered as described – your employees are relying on you to treat their referrals with care
There are a range of elements you need to consider when putting an employee referral program in place, including:
- How you will communicate your referral scheme to your employees
- How you will reward referrals
- How your employees will share role vacancies with others in their professional and personal networks
- How you will maintain momentum with the referral program
- How you will keep referring employees informed of the progress of those they have referred
- What your referral program for contractors, freelancers and contingent workers looks like
- What your standard practice will be to distribute advertisements and other content for your employees to share with their personal and professional networks
Structuring your referral bonus program
Whilst the first thing that comes to mind when you hear the words “referral bonus” is cash, this is not the only way that you can reward employees for candidate referrals.
Assuming you have a diverse workforce, your employees are likely to be motivated by different rewards when referring candidates from their networks.
Historically companies have offered one off referral cash bonuses on the successful placement of referred candidates. But that assumes that all employees are driven by money. An innovative employee referral program reflects different employee motivators and aligns its referral system rewards accordingly.
Practical idea: Involve a cross section of your company to drive the development (or re-development) of your employee referral program. HR, Talent teams and Executives haven’t cornered the market of referral system utopia. Determine what people from various part of your company would value.
When you include people from within your company, they become champions of the employee referral program too.
Define your employee referral program rules
You need to put a few terms and conditions in place that under write your employee referral program. Don’t make these conditions too laborious – it will deter employees from referring candidates.
Here are a few ideas to consider:
- The referred candidate must be employed as a permanent full time member of staff for 6 months before the reward is issued
- If the referred employee leaves after (say) 6 months of their own accord or via dismissal, the referral bonus is negated
- If the referring employee leaves before the 6 month period is complete, no referral bonus or reward will apply
- Put a limit on referrals that can be made in a year – this ensures employees won’t spend their whole year scouting for talent but not their job. In saying that, perhaps natural scouters should sit within your recruitment and talent acquisition function!!
- Decide who will be excluded from referring candidates – ie some companies exclude Executives/Leadership teams, HR and Talent Executives and returning employees
- Be clear about who can be part of the referral program. I advocate that it should be open to anyone within the company (excluding those nominated above)
- Nominate when the bonus or reward will be given eg after the referred employee has been with the company for six (6) months
- Outline clearly how any disputes will be handled
- Create a 12 month communication strategy (across various channels), to keep your program front of mind for all employees
- Confirm whether you will consider general referrals, rather than referrals for specific roles (I would argue you should take ALL referrals at any time irrespective of whether you have a job available)
- Have your CEO and leadership team members create a small video to re-iterate why your company values referrals from employees, given referrals drive the future success of your company. Communicate it at company events
Referral bonus programs to suit varied employee motivations
There are different employee referral programs you can roll out. Here is a round up of some popular types of rewards:
1. Financial employee referral bonus
What: Money paid to the referring employee when their referred candidate is hired
Ideal for: Those motivated by money
This one is pretty self explanatory. When employees refer candidates who are employed by your company, they receive a cash prize or bonus (usually at the end of a probationary period of 6 months or similar)
2. Experiential employee referral bonus
What: Offering referring employees time off, a holiday, vouchers for restaurants and accommodation, flight vouchers, gym memberships, day spa and other well being experiences
Ideal for: Those motivated by experiences and taking time out for their well being and passions
3. Social employee referral bonus
What: The referring employee in a form of social recognition and praise
Ideal for: Employees whose main motivation is to be seen as a valuable colleague and contributor to company performance
How to implement: The Founder or CEO publicly gives praise to the best-referring employee in any whole of company, division forums and online communications mechanisms
4. Altruistic employee referral bonus
What: Altruistic bonus in a form of socially responsible gifts
Ideal for: those who want to help out their friends and/or company
How to implement: The referring employee nominates a favorite charity or cause and a donation is made to that course by the company on behalf of employee.
Employee referral program ideas
Not sure which referral system would work best in your company? Personalize it. Let your employees choose for themselves which reward type works for them best, on a case by case basis.
Personalization definitely makes a difference when it comes to developing an effective employee referral program.
Recent LinkedIn research reports that the main reason employees refer candidates to their company is to help their friends, former colleagues and their company. Here are some further interesting statistics from an article written by Talent Lyft:
- 35% of employees refer to help their friends
- 32% do it to help their company
- 26% refer to be seen as a valuable colleague
- Only 6% of employees refer candidates to earn money
Innovation in employee referral programs
Here are some innovative referral ideas companies have used with success recently:
- Thoughtspot announced their exceptionally high $20,000 employee referral bonus in 2014. Employees and ‘friends of the company’ are eligible to win the reward. Their bold move made an impact and brought in three big hires in the first few months after its launch
- Raizlabs, a mobile development company, offers a fun referral program: referrers get a 4-day, 3-night trip to one of four destinations
- This innovation is slightly left of centre, but some companies offer referral bonuses for those who interview for a role but are not successful. For example, let’s assume that you meet a candidate for a role but they are not quite right. Let them know that you will reward them if they refer talented people from their personal or professional network who are employed by your company
- Include strategic partners, vendors and clients as part of your referral program
As an aside, I am seeing a new trend where employers are asking those who apply for roles to nominate who they are connected with on LinkedIn.
Sometimes the applicant will know those people well. In other instances they may not. This concept is still in its infancy but at this stage seems to have some merit as an effective social network recruitment strategy and referral based tool
Driving outcomes via a communications strategy
Effectively marketing your employee referral program is pivotal to its success. Product companies promote their products all the time. An employee referral program should be no different. A referral program’s success is directly tied to how well it’s marketed.
If you can keep it top-of-mind with your employees, you are going to see more referrals. It is important to set up a communication strategy if you are re-invigorating your current employee referral program or creating a ground up referral program.
Here are a few ideas that you could incorporate into your employee referral system marketing approach:
Make referral gifts visual
If many of your employees work in the one office (this is becoming rarer by the day), then consider placing the very thing referring employees will get if a referred candidate gets hired in a prominent office location. This way the employee referral program stays front of mind.
Ask your employees a question via email
Google uses this approach – they ask questions of their workforce via email like “Who is the best salesperson you know in New York?” Asking specific questions forcibly jogs a person’s memory.
Rather than sending around a Job Description in an email and asking if your employees know anyone who might fit the bill, it can be more effective to ask your workforce a question instead.
Experiment with this approach. You should notice an increased email open rate and potentially a much higher response rate too.
Use posters or banners on your intranet with a riddle or a cryptic question
Rather than putting up generic posters in your physical work space, consider putting something up that’s a little unexpected instead.
Perhaps you could put up a riddle or question that relates in some way to what your company does in your central meeting hubs (such as kitchens and meeting spaces). It gets people talking and creates conversations, which in turn will promote your employee referral program.
Take over the front screen of your intranet every now and again and consider referencing your referral program on multiple pages of your intranet. Don’t forget to measure the results to see how effective it is in soliciting employee referrals.
Ask for referrals early
Some companies such as, Privilege Underwriters Reciprocal Exchange (PURE), an insurance company, sources between 40 and 60 percent of its employees via referral. How do they make that happen?
They ask for referrals…early. Within thirty days of someone being hired at PURE, a recruiter within the company will ask them if they know anyone else who would be a good fit for the company.
Combine this with making sure that the employee referral program is comprehensively covered as part of your on-boarding program. This means that the importance of referring talented individuals is instilled in all employees from the outset.
Employee referral bonus policy
The best employee referral bonus systems are reflected in a company policy. A haphazard approach to employee referrals leaves everyone frustrated. Your employees will refer candidates only when they are confident your company will treat those candidates referred from their networks professionally and when they understand the reward system that is in place.
Your employee referral policy should include:
- An outline of the process
- Clarification of terms and conditions
- A commitment to the frequency of program review
- Reference to a disputes resolution process
The importance of leadership support and buy in
Your employee referral program is NOT an initiative that should be seen as important to your HR, recruitment and talent acquisition teams alone. It is essential that every employee in your company understands the importance of referring talented prospective employees. The program must be regularly communicated by the Executive and senior leaders in relevant company forums.
Don’t just role out the program with an “enticement” such as a reward. Mention the importance of building a successful company and that you value the input of the talented individuals that work within your company. Ingrain referrals into your company culture.
Disrupting candidate referral programs – there’s an app for that!
Clunky spreadsheets and manual tracking of referrals is becoming a thing of the past. There are plenty of apps and software solutions popping up to assist your company to optimise referrals. Here’s just one example to demonstrate the power of new technology.
To help companies boost employee referrals and save on hiring, the team at JobShakers has built a mobile application that makes the process super simple. The JobShakers app lets employees quickly refer friends who can apply for job listings, without even putting down their smartphone.
Here are some other popular employee referral software solutions on the market currently you might like to research further:
Integration with applicant tracking systems
Some of the software above can be integrated with popular Applicant Tracking Systems such as Taleo, Jobvite and PeopleSoft. This is helpful as it obviously means you can track referrals in your core system rather than having to work with two separate systems to manage, track and reward employee referrals.
Measure and adjust your referral program progress
Even a small increase in the success of your employee referral program will reduce your recruitment costs, save time and improve your retention rates (given it’s proven that referred employees stay with your company longer).
As I always say, the results of every new recruitment or talent acquisition initiative that your company implements, should be measured. If you already have a system in place, create a benchmark by taking note of a few key metrics:
- How many candidates have been referred in the last 6 months through your existing program (if you have one in place)?
- How many of those moved through to interviews?
- How many of those turned into hires?
- Create a list of who is currently referring candidates to the company
If you don’t already have an employee referral program in place, you will need to measure your metrics from “ground up”. When implementing a new program, you may need to wait 3-6 months to measure meaningful results given the full recruitment process takes some time to play out.
Gain employee feedback via a quick survey
When you want to see if a process in your company is working, there is no better feedback mechanism than asking for input from your employees. Consider using Survey Monkey or another tool of choice to determine:
(a) if your employees are aware of your employee referral program
(b) if they have referred candidates via the referral program, how they would rate that experience
(c) whether the bonus or rewards in place appeal to them and;
(d) if they haven’t referred as yet, why that is the case
Obviously a survey guaranteeing anonymity will provide you with more candid feedback from your employee base.
Measure the referred candidate experience
The hard part is done – a referred candidate is sitting opposite you in an interview. Make sure your company takes advantage of the reduced time and cost to source this potential employee by creating an exceptional candidate experience.
Your current referring employee wants their nominated personal or professional contact to experience a professional recruitment process. Roll out the red carpet. In many ways, their reputation is on the line.
Pay respect to both your current employee and the candidate that they have referred to your company. That way, if they are the right candidate for your company, the candidate is more likely to take your company’s offer and your referring employee is likely to make further referrals in the future.
Whether the referred candidate is successful or not, make sure you ask for their feedback on your recruitment process. Survey your referring employee too. Iterative changes to your referral program over time will help you improve the process and experience for all involved.
Are your referral numbers currently really low? There is often a correlation between your employee satisfaction survey results and the number of people referred. Your employees will not refer others if they are unhappy. This is obviously a topic for an entirely separate article.
If you have the luxury of time, you can begin experimenting by making small changes to how you communicate your employee referral program with your employees, freelancers, contractors and contingent workers (remembering to measure results).
Of course if you need more employee referrals “yesterday”, you are best to act on a range of initiatives at once, to improve the volume of employee referrals. Measuring the difference over a quarter (3 months) time frame is realistic. Any shorter term comparison is not likely to produce meaningful trends or results
Innovation in Employee Referral Systems – Implications for talented individuals
- As employers ramp up their employee referral programs, your professional and personal contacts are likely to reach out to you via their own social networks. The key take out here is to be where your network is online. This will ensure you hear about relevant opportunities, even when you are not actively looking for work
- If you want to hear about new opportunities more consistently, you need to be connected with others in your personal and professional networks via social platforms such as LinkedIn. But consider connecting with people in your network on other digital platforms too, like Facebook, Twitter and Google+
Innovation in Employee Referral Systems – Implications for companies looking for talented people
- If you haven’t revisited your employee referral program in the last couple of years, it’s time to review your strategy
- If your Executive team is not involved in communicating the importance of referrals to current employees, get them involved
- If you are not tracking the results of your current program, put a system in place so that you have a benchmark for improvement when you innovate your referral program
- Take the time to develop the digital content your employees need to spread the word about opportunities in your company (get assistance from your marketing team if need be). Be explicit about how you would like your employees to share role opportunity information with their networks on various digital platforms. You need to make the sharing process is as easy at possible
- Survey staff to see what they think of your current program. Consider having someone with a iPad roaming the room at your next company forum. Move around the room and ask employees to answer a couple of questions about your referral program to better understand the gaps in knowledge or need for change. If employees indicate they need more information, you can have a follow up conversation about the referral program
- Meet with or call specific employees (particularly team leaders and managers), to make sure they are across the details of your employee referral program. Motivation is high for anyone in your company who feels pain when quality candidates are hard to find. With a better grasp of the referral program, your company leaders will be better equipped to disseminate the message to their teams
Need some assistance with your employee referral program? I can help, so get in touch. Here are just some of the ways I can help your company:
- Create a Survey Monkey Guide for feedback on your current referral program
- Create a communications strategy and templates to share details of your referral program with your employees
- Develop an Employee Referral program policy
- Provide you with an Employee Referral program review template
- Identify employee referral tools that might be right for your company
Conclusion – Implementing an employee referral system is a no brainer
Getting a candidate referral system in place is not rocket science. But it does have the capacity to save your company significant time, resources and money.
An effective employee referral program allows your employees to make a meaningful contribution to the success of your company. It is a low risk, low cost solution for recruiting talented individuals to join your company and help it (and them!) to thrive.
Need some help developing an effective candidate referral system? Or perhaps it is time to update your existing candidate referral system. I can help. Get in touch.
Further Reading and Resources
Employee referral program ideas by Fits Small Business
Turning employees into brand advocates by LinkedIn Talent Solutions
The 4 most innovative employee referral bonus ideas from Talent Lyft