In today's tight labor market, it's harder than ever to find the right people. This article offers perspective on why employee referrals just might be the best way to do it—and how your referral program could probably be improved. But labor is just one piece of the puzzle when it comes to keeping your business running. For more, visit Grainger.
I find myself shocked by the large number of companies who underutilize the best and most efficient source of great candidates: employee referrals.
Sure, two-thirds of companies have some sort of employee referral program in place and employee referrals are the number one source of new hires in corporate America.
But the reality? Your company likely can do much more to encourage those referrals.
In too many organizations, referral programs are under marketed, overly cumbersome and poorly run. I’ll bet dollars to doughnuts that a huge chunk of your team doesn’t know how your program works. And I’ll wager they frequently don’t hear back about the status of their referrals–which, of course, discourages them from making more referrals.
It’s a shame. Because referrals truly are the Holy Grail of recruiting.
Consider these statistics:
- Retention rates for referrals are much higher than the rates for other employees.
- Referrals generate the best return on investment than all other hiring sources.
- Almost two-thirds of referred employees referred at least one person to their current company.
What these numbers mean is that referrals create a virtuous circle that can help you to build and maintain a first-class team. Put simply, top-performers like to work with other rock stars. Maximizing your employee referral program is an essential ingredient to growing a high-performance culture.
Be honest. How is your employee referral program working? Are you receiving referrals for a large percentage of your open positions? Are your people being rewarded and recognized for successful referrals? Is the program well understood by most employees?
If you can’t easily answer these questions, it’s time to review and revamp your program. Here are my suggestions, based on the best programs I’ve seen:
Keep it simple. Ideally, your employees should be able to read an internal job description and click on a link that brings them to a page where they can refer a candidate. Make it as easy as possible and put the responsibility on following up with the referral on others in the organization.
Market the program… often: Tell your employees that you’re interested in working with them to build a great place to work and a rewarding culture. Let them know that you will send emails about open positions regularly and would appreciate their recommendations for suitable candidates who will fit in with the culture and have the capacity to make important contributions.
The program involves everyone, so it’s appropriate to send company-wide emails regularly on how things are going. I love to highlight new hires made through referrals and provide metrics about the number of new hires made through employee recommendations versus other sources. Keep your people informed and engaged.
Prioritize referred candidates: When you receive an employee referral, advance it to the top of the stack. No questions asked. Regardless of your initial instinct, these are your best leads and should be considered before anyone else.
Pay people fairly: Industry-wide, cash bonuses for employee referrals range from about $250 to $25,000 or so for executive positions. You can also pay in company stock, vacation time or gift cards. I recommend paying the same amount for most positions. After all, the employee making the referral isn’t doing much more than passing on information about a person they worked with in the past.
Google conducted a study in which they doubled their referral bonus from $2,000 to $4,000. The increase didn’t significantly increase the number of referrals. It’s far more important to promote the program often then to pay top dollar.
At most companies, employees don’t receive a referral bonus until the person they referred has worked at the company for a specified number of months. This is a disincentive. I believe in instantly rewarding the specific behavior or outcome that is being sought. So I recommend paying most, if not all, of the bonus upon hiring.
Respond to all referrals: Here’s where most programs fall short: referrals go into a black hole. Neither the HR person overseeing the hire or the hiring manager follow up on the recommendation. And no one gets back to the referring employee. Even if the recommendation is way off base, someone (generally an HR staffer) should at least thank the employee and provide the status.
Recognize people for successful referrals: In addition to paying people a referral bonus, employees should be publicly recognized when the person they recommended is hired. Obviously, people appreciate the recognition, but it also helps to build visibility and support for the program throughout the organization. Your competitive employees will pay particular notice.
Quiz your new hires: A great way to build names of potential candidates is to meet with each of your new hires within their first 30 days and go through their LinkedIn network together. Sit at their desk, and brainstorm who they might recommend for roles that are currently open and roles that might emerge in the future.
Executive support for the program: Encourage your CEO and senior leaders to champion the employee referral program, emphasizing its importance and highlighting its successes.
The Best Investment You Can Make
The value of employee referral programs is unequivocal and compelling.
Referrals deliver the highest quality candidates, in the least amount of time and for the lowest cost per hire. Plus, over the long-term, referrals fit in better, outperform and stay around longer than candidates hired through other sources.
If that’s not the holy grail, I need to change what’s in my cup.
Make your employee referral program best-in-class and you’ll build a workforce that outshines and outpaces your competitors.