How (and Why) to Create an Employee Referral Program
Finding great candidates is difficult, time consuming, and expensive, and keeping them happy, engaged, and committed to the company for the long run takes significant commitment from all levels of the organization. What if there were a way to ease your recruitment and retention problems, all while decreasing your recruitment costs and finding employees that fit with your company culture? There is such a way: an employee referral program.
What Is an Employee Referral Program?
An employee referral program is a set of incentives that encourage existing employees to collaborate with you in the recruitment process. Employees draw on their personal networks in order to identify candidates they think would be a good fit for open roles and the general culture of your organization. Generally, these programs also involve a commission or other incentives for employees who refer successful candidates.
4 Benefits of Employee Referral Programs
1. Decreased Recruitment Costs
According to a 2016 survey from SHRM, the average cost-per-hire is $4,129. However, this number only takes into account the costs involved in posting job ads, working with recruiters, and performing tasks that directly deal with the hiring. As recruitment consultancy firm Quarsh explains, the cost is often much higher when taking into account lost productivity due to a vacant position, the time needed to interview candidates (not all of whom will accept offers), and the exorbitant cost of hires who leave the company within a short period of time.
An employee referral program mitigates many of the problems above. In particular, you can cut down on the need to pay external recruitment agency fees and deal with people who will understand what you want better than most external recruiters.
2. Better Employee Fit
Employee fit is harder to quantify than the cost of working with a recruiter or posting a job ad, but any HR veteran knows that a good fit is the difference between an employee who excels and one who holds a team back. Employees that fit well with both the position and your company culture are also easier to train, have better morale, and reduce stress on managers (and on you!)
While you can use personality screenings, questionnaires, and the right interview questions to gauge how a candidate will fit your company culture, a current employee will be an even better judge. After all, they not only understand the company culture, but they also know the referred candidate outside the formal context of work and interviews. This makes your current employees uniquely suited to find higher quality candidates with a fit that is difficult to get on your own.
3. Improved Retention
Consider this: on average, companies that use employee referral programs have a retention rate of 46%, compared to a 33% for companies that don’t use referral programs. This makes sense, given both the better fit that we discussed above and the fact that a referred employee already has a tie to the company: the person who referred them.
This preexisting connection helps the employee feel part of the organization, as well as boosts their loyalty (they don’t want to disappoint the person who put in a good word for them).
4. Greater Reach
When you recruit through job boards or headhunters, your range is limited by your budget and the visibility of the job board or network of the headhunter. And even with the job posted, not every job seeker who sees it is going to apply (never mind meet the qualifications you’re looking for).
Referrals, on the other hand, reach people that may have never seen your job posting or be on a recruiter’s radar. Not to mention that you can attract applicants who are highly qualified but wouldn’t have otherwise applied if a friend or acquaintance hadn’t given them the extra encouragement to do so.
4 Steps to Create an Employee Referral Program
Now that you understand the benefits of an employee referral program, how do you create one? We suggest the following steps to set your employee referral program up for success:
1. Involve Current Employees from the Start
For an employee referral program to succeed, your employees need to know it exists. Just because recruiting is top of your mind, that doesn’t mean it’s on the mind of people who don’t work in human resources. And employees will feel more invested in the program if you work with them to create it.
What will your process be for referrals? Will employees send you an email? Is there a form to submit? Under what conditions will they receive referral bonuses? How will you make employees aware of open positions? These are all questions you need to answer when creating an employee referral program, but they’re questions best answered with the involvement of the people who will be doing the referring.
2. Get Creative with Referral Bonuses
The most intuitive (and most common) way to incentivize employee referral is to pay a referral bonus for every referred candidate who is successfully hired and remains at the company for a set period of time. While financial bonuses are a compelling way to motivate employees to refer people, they’re not the only ones you should consider.
You can also offer additional paid vacation days, prizes, or experiences in exchange for a successful referral. Considering that 4 in 5 employees would prefer increased benefits or perks to a pay raise, it’s worth considering these alternative incentive options. Our favorite example of an alternative referral incentive is from tech firm InMobi, which offered a motorbike to the employee who successfully referred an engineering manager.
3. Monitor the Program’s Success
Even though the statistics on the success of employee referral programs are encouraging, you still need to monitor the success of your own program to ensure it is effective. In particular, you need to track the percentage of referrals that turn into new hires, as well as the retention rate for referred employees. You can use a tool like Zao or Referagig to make it easier to track these statistics.
Beyond these numbers, you should also send periodic surveys to gauge how many of your employees are aware of the existence of your referral program, along with surveys of employees hired via referral to gauge their job satisfaction and engagement.
Once you have the above data, you can modify the program as necessary, knowing that with time you’ll discover the strategy that works best for your company and employees.
Employee Referral in Summary
With the information in this article in hand, you’re now equipped to create an employee referral program as part of your overall HR and recruitment strategy. You know that employee referral programs benefit your company through:
Decreased recruitment costs
Better employee fit
Furthermore, you know that the steps to create an employee referral program are to:
Involve current employees from the start
Get creative with incentives
Monitor the program’s success
We wish you the best with your recruiting!