RPO & StaffingTalent Acquisition

In The Know

Why an employee referral program may be the answer to your recruiting and retention problems.

By Cari Turley
The right people can make or break a company. That’s great news for the self-employed, but unless you have a workforce of one, staffing is a major, perpetual concern.
Sad but true, your employees won’t stay forever. One in three employees will leave a current job between 2013 and 2014, and as baby boomers begin to retire, replacement needs will exceed new job growth vacancies in four out of five occupations. The U.S. Bureau of Labor Statistics’ 2010–2020 Employment Project Report forecasts a decreasing overall labor force over the course of the decade, leaving thousands of organizations in the lurch.

Recruiting is a challenge even when you’re not trying to keep up with large-scale generational turnover. You need to hire quality candidates who won’t leave in six months. An employee referral plan is a great option. More than just a recruitment strategy, it’s an all-inclusive approach to engage your workforce and streamline your recruiting, all while saving time, money, and effort. An employee referral program can help acquire top talent at a fraction of what agencies will cost, all while strengthening your unique culture of employee success.

What is employee success? It is the intersection of performance and engagement. It’s the secret of companies known for innovation, fantastic customer service, consistent business success, and inimitable culture that are consistently at the top of their field. Engaged employees provide exceptional service; exceptional service turns customers into supporters; and supporters lead to business success. With a shared vision for success, your workforce will lead, collaborate, innovate, and excel.

So why move forward? Employee referral programs have a bevy of benefits that are backed up by statistics:

More efficient. Candidates found through employee referral programs are hired at a rate of one to three. Non-referrals are hired at a rate of one to ten.

More cost-effective. Employee referrals usually cost less than $1,000.

Actual hires. Employee-referred candidates make up just 6.9 percent of total candidates, but account for 40 percent of total hires.

Passive candidates. Referrals bring jobs to the attention of people who aren’t actively looking, getting your company in front of different pairs of eyes.

Higher quality employees. New hires from well-designed employee referral programs routinely produce the highest on-the-job performance of any recruiting source. Recent research indicates that referred employees are roughly 25 percent more profitable than their peers.

Cultural fit. Your employees know your corporate culture better than anyone so they will not recommend a weak fit. They’re also likely to paint a realistic picture of the job for the candidate, which leads to more informed decisions. A recent Harris survey reveals that the two most trusted ways to learn about a company are through past and present employees.
Reduced time to hire. Referred applicants are placed within 29 days. Applicants from job boards take 39 days, while applicants from career sites take 45.

Decreased turnover. Eighty percent of employees hired from job boards will be leave a company in two years. But because employee-referred candidates join your company with more realistic expectations and a built-in sponsor, they leave at much lower rates equaling an average of 45 percent retention after two years. Also, because the referral adds a layer of pre-screening, these employees have a 350 percent reduced chance of being fired.

But there are also some considerations to take into account:

Diversity. If your organization is not especially diverse, make an effort to branch out—the Equal Employment Opportunity Commission will be very interested in the diversity of your applicant pool if you rely solely on referrals.

Reward referrals, not leads. If you pay for resumes regardless of quality, employees are incentivized to submit piles of unworthy applicants. To reap the benefits of employee referrals, insist on a personal recommendation. If an employee is willing to put her reputation on the line, that’s a candidate worth pursuing.

Consider the source. In large companies, employee experiences can vary dramatically. If you’re hiring for the sales team, an employee in IT may not know exactly what that job involves. For the best results, give priority to referrals coming from the same team as the available position. Also give priority to your top performers—a referral from a top employee yields candidates who have a 90 percent greater profit impact than the average referral.

Creating Your Program
There are a few best practices to follow in order to secure a successful employee referral program.

Define your employee value proposition. An employee value proposition (EVP) is an extension of your corporate brand and a critical part of recruitment and retention. Your EVP is an expression of what you offer potential employees, and the more accurate it is, the easier it will be to recruit and retain top talent.

Set a measurable goal. Make sure the program works by setting benchmarks for the number of employee-referred hires you want to make and set a timeframe for completion. Be transparent—managers can’t work toward a goal if they don’t know what success looks like at the end.

Select a leader. Follow good project management best practices and designate someone to lead the charge.

Create incentives. Recognition alone is a powerful motivator, but you’ll get the best response if you give your employees a little something extra for their efforts. The more you offer, the more likely they are to participate, but make sure you’re only incentivizing quality leads or you’ll end up with unqualified candidates.

Spread the word. Your employees won’t start making referrals unless they know you’re looking. Communicate the entire strategy—not just the rewards part—to all employees, get your executives on board, and let everyone know when there’s an opening in their departments.

It’s a marathon not a sprint. After the launch, make a point to check in, remind employees, and give updates on your progress toward goals. It’s not a one-time push; it’s a permanent campaign.

No HR program should exist in a silo. To make the most of your employee referral program, integrate it with an employee rewards and recognition solution and other human capital management software. With an online employee recognition program, you can create campaigns to drive employee referrals. Using those best practices, you can also create additional campaigns to drive other results, such as submitting cost-saving ideas, process improvements, or feedback for senior management.

Instead of giving cash bonuses for employee referrals, integrate the campaign with an online rewards and recognition program and give employees a choice of rewards. By keeping the program online, participation becomes measurable—plus, a little friendly competition spurred by a live feed and leaderboard will encourage participation.

An employee referral program is a great way to give your more introverted employees recognition. Your quieter employees are just as networked as the rest of your staff, and by giving them public praise on your company’s recognition feed, you help raise their profile in the office.

Instead of emailing job announcements to employees with requests to forward them to friends or contacts, move the whole process online. You’ll eliminate hours of sifting through databases, reviewing lists of connections, and importing resumes.

Social media networks are also powerful sources of referrals. According to new research by Aberdeen Group, recruiters in 53 percent of best-in-class organizations use social media networks for referrals, compared to only 37 percent of less successful organizations. But while the use of social networking sites to recruit potential job candidates increases by about 10 percent every year, it’s still no match for the 79 percent of job applicants who are likely to use social media in their job searches—many of whom are Millenials. Smart companies meet the candidates where they are: online. Particularly if your company hires a lot of young employees—87 percent of whom have already selected their preferred employer before entering the workforce—a presence on social media is a must.

Your employees already have vibrant professional and personal social networks; make sure you capitalize on them. These networks include former co-workers, professional associates, classmates, suppliers, and others beyond the reach of traditional recruiting methods. Don’t miss the chance to tap these networks for referrals.

Enable your employees to share open positions on social media. Send a companywide email every week to all employees with four featured job openings. Employees can forward those openings to people in their social networks who might be good prospects, or post them to their pages and groups. Technology allows for organizations to use referral buttons on their online job postings. This allows job seekers to see who among their Facebook friends or LinkedIn connections currently works at the company. If any matches are found, the applicant can send them a referral request. Some vendors even offer software that scours social media networks for candidates with work history, credentials, and a location that fit a current job opening and then alert the candidate’s contact at the company. The employee then has the opportunity to forward the job posting to his friend that the software has identified as a good fit.

There’s no question: employee referral programs are effective. With almost no overhead, you can take advantage of the embedded team of recruiters you never knew you had: your employees. Even a generous referral reward will undoubtedly cost less than a headhunter. By including your employees in the recruitment process, you’re demonstrating that you value their input and this will make them feel like a stakeholder at the organization.

Cari Turley is a copywriter at Achievers.

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