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HR Magazine, August 2001: - The Headhunter Within 

8/1/2001  By Michelle Neely Martinez 

HR Magazine, August 2001 

Vol. 46, No. 8

Turn your employees into recruiters with a high-impact referral program. 

Hiring top-notch individuals at a low cost-per-hire rate is a recruiters dream. Today, many employers are turning that dream into reality by revamping tired employee referral (ER) programs or creating new ones from scratch.

For AmeriCredit, based in Fort Worth, Texas, employee referrals have been the source of 45 percent of hires since the company kicked off its Youve Got Friends, We Want To Meet Them ER program last March.

We wanted to create a centralized approach to building a more qualified applicant pool, says Collier Albright, assistant vice president of recruiting.

The new program also brought a bonusa decrease in turnover of more than 50 percent. Although there were other factors at work, we attribute the huge reduction in turnover to the employee referral program, Albright explains. Quality people know quality people. If you give employees the opportunity to make referrals, they automatically suggest high-caliber people because they are stakeholders in the company.

Lisa Kaminski, director of human resources at Digineer Inc., a 120-employee software development company in Mason, Ohio, agrees.

Theres definitely a stronger sense of ownership when employees refer candidates, she says. Employees wont refer someone they cant depend on. Last year, half of the companys hires came from its ER program.

At Hartford, Conn.-based Lincoln Financial, the ER program is responsible for 55 percent of external hires. The program brings in quality candidates, and, by using it, we feel we are acquiring a known commodity, says Lincolns staffing director Merryl Rees. In the last six months, weve filled five senior-level positions through the program.

If a search firm had been used, the standard 30 percent charge of the first year of salary would have cost Lincoln $150,000 in recruiting fees (30 percent of five salaries at $100,000 each). Instead, the company paid a total of $5,000 in the five $1,000 awards to the employees who made the referrals.

Survey data also emphasize the high value of ER programs. Cost-effectiveness was a primary benefit of implementing an ER program for 80 percent of respondents to the 2001 Employee Referral Program Survey conducted by the Society for Human Resource Management (SHRM) and Referral Networks. The survey reports that, on average, each exempt hire made through an ER program costs an organization about $800; each nonexempt hire costs approximately $333.

Finding the Funds
Whether you want to improve an existing ER program or start a new one, Kerri Koss Morehart, director of recruiting for SRA International, a government contractor based in Fairfax, Va., suggests you begin by answering the following questions:

  • How much money is spent now for recruiting overall?
  • Could you reduce some cost areas and improve the quality of hires?
  • Are you using outside agencies instead of your own inside agency?
  • How many hires would you like to get from the ER program?
  • What cost-per-hire numbers would you like to hit in your overall recruiting program?
  • What types of metrics will be used to measure the impact of ER?
  • How will you track ER program costs vs. return on investment?

The answers will help you build a budget or reallocate money in the existing budget for the ER program, explains Morehart, who revamped SRAs program several years ago. Today, half of SRA employees are recruited via employee referrals.

When Morehart was building a case to spruce up SRAs program, she listed the number of employees who came from referrals along with their performance rating. The numbers spoke for themselves, she says, because the performance of these employees ranked highest in the company. Measuring referral impact is critical, says Morehart. If you dont know how you are doing, you cant fix anything, make things better or illustrate value.

To keep the program in front of management and employees, Morehart issues a weekly e-mail report, which features information on resume flow, interviews conducted and individuals hired. When listing individuals who were hired, I make a notation beside the name of those who came from referrals, she says. This small gesture makes a big impact, she says. It really brings home to them how the employee referral program makes a difference each day.

Structuring Incentives and Rewards
Cash is the most popular award given to employees who refer hired individuals, although the amount of cash varies, according to the SHRM/Referral Networks survey.

Some employers base the cash payout on the type of position being filled. For example, SRA awards $500 for administrative staff hires, $800 for entry-level professional hires, $1,000 for managerial hires and $2,000 for hard-to-fill highly specialized positions. AmeriCredit and Digineer pay a flat fee of $1,000 for any position filled via the ER program.

The SHRM/Referral Networks survey reports that for exempt positions, the most frequently indicated reward, given by 32 percent of the respondents, was between $500 and $1,000; 29 percent of respondents award less than $500 for referrals to exempt positions. For nonexempt jobs, 42 percent of responding employers pay less than $500; 36 percent award amounts between $500 and $1,000.

When the cash award is actually paid to employees also varies among employers. Because turnover is typically high among call center personnel, AmeriCredit stretches award payments over a years time. The payments, however, are grossed up so employees actually receive a total of $1,000 after taxes have been applied. The first payout is made 30 days after the referred employees start date.

Other incremental payouts are made based on the new employees length of service, such as at 90-day, six-month and nine-month intervals. The final payment is made when the referred employee is employed for one year.

Microlog, a small technology firm based in Germantown, Md., pays 50 percent of its referral cash award$2,000 for exempt positions and $600 for nonexempt positionson the day a new employee starts work. The remaining half is paid when the new employee reaches 90 days of service. Technology firm Cimnet Systems Inc. in Downers Grove, Ill., gives cash awards after referred employees have been on the job six months.

At Johnson & Johnson, referral awards are paid two weeks after the new employees start date. We dont build time into the system, says Ellen Gilbert, director of recruitment marketing at Johnson & Johnson in Raritan, N.J. Weve found that theres a real drop-off in interest if we wait 90 days. Employees get a real sense of gratification when the payout is immediate.

Johnson & Johnsons program also is unusual in that practically all employees, regardless of their positions within the company, are eligible for the cash awards. This includes vice presidents and higher, which many people do not include, Gilbert says. We also include HR people, as long as they are not directly involved in any part of the recruitment process for a specific job.

Revamping Old Programs
While Johnson & Johnson had an ER program for years, it recently redesigned and reintroduced it, explains Jeanne Hamway, vice president of recruiting. We always had a referral program, but most employees werent aware of it because it wasnt really promoted.

Working with Baldwin & Obenauf Inc., an advertising agency in Raritan, N.J., Hamway and Gilbert began to realize that portions of the companys overall branding campaign needed to be internal. In recruiting messages, Johnson & Johnson emphasizes the small company environment with big company impact, explains Ray Ferreira, creative director at Baldwin and Obenauf.

The new employee referral program takes that message back inside the company, reminding employees why they work at Johnson & Johnson and motivating them to communicate those reasons to their friends, says Ferreira.

Eferral, the name of Johnson & Johnsons ER program, was rolled out in January. The E stands for electronic and employee referral, explains Gilbert. We wanted to promote use of the Internet because a company goal is to better leverage our intranet and the Internet.

Along with publicizing ER success stories on Johnson & Johnsons intranet and using banner ads and posters, the company designed Tylenol medicine boxes with the Efferal theme that were given away on kick-off day. We wanted to create a program launch atmosphere because thats what J&J employees are accustomed to in their work environment, Ferreira says.

The company didnt change the cash awards. What has changed is the interpersonal communication and promoting the satisfaction an employee receives from connecting a friend with a great opportunity, says Gilbert.

Johnson & Johnsons goal for this year is to hire 40 percent of employees via the Eferral program, but the long-term goal is much higher. I would like to make every employee a recruiter, says Hamway. Employees do the first screening of candidates. We see this as really part of their jobs.

Although it should be a given, managers often fail to realize that recruiting is part of their jobs, explains Mary Anne Sendra, director of human resources at Cimnet Systems Inc. in Downers Grove, Ill. Our employee referral program has brought this message home to them, she explains. Managers are more involved in recruiting now and really take on more ownership.

Primedica Corp., a Horshame, Pa.-based pharmaceutical research company recently purchased by Charles River Laboratories Co., has witnessed the power of revamping referral efforts. In the past, about 20 resumes a year were received from the ER program. When referrals were hired, the payout was $100, which was paid after the new employee worked six months.

In the first 11 months of Primedicas new See Green employee referral campaign, 220 resumes surfaced. In the same time frame, 60 percent of hires at one research site came from employee referrals. Weve hired 70 people from referrals, says Carol Kline, director of human resources. One out of three referred candidates gets hired.

High turnover and a low supply of new-hire job candidates prompted the plunge into the highly creative See Green program, which features a very vibrant green lizard as its mascot. We didnt just want to throw more money on the table, Kline explains. We wanted a well thought-out theme. One thing we did know about our young workforce is that they want instant gratification. So, we wanted to build something into the referral program to address that.

With the help of Philadelphia-based Alstin Advertising Inc., Kline created the See Green Employee Referral Program, which incorporates a scratch-off, lizard-green lottery-style card that employees receive when they hand in a resume or application for a candidate qualified for a posted job opening, Kline says. The card enables them to win something for their efforts immediately. Prizes include a free vacation day, travel mug, See Green T-shirt or a video store gift card. The lottery card (with the name of the participating employee) is returned to the HR department, so it can be entered into the quarterly $1,000-prize drawing.

The younger segment of employees want rewards quickly, says Kline. Thats why we took this staggered approach to rewards. We kind of use the pot at the end of the rainbow concept. Primedica awards $500 to each employee who refers a successful hire once the new hire has been employed 90 days.

Keeping the Referrals Coming
Spending the time and money to create a themed program provided an unexpected advantage, explains Kline.

In January, we put glasses on the lizard and featured it in a quarter-page recruiting ad in The Philadelphia Inquirer, alongside ads from big-company competitors. The headline was catchy and the lizard really is an attention-grabber. We got over 300 resumes from that one ad.

Keeping their ER programs alive and freshand visibleis one of the biggest challenges employers face. Informing participating employees of the status of their referrals and keeping the benefits of the program highly visible are key components to success, according to the sources interviewed for this article. Here are some other ways to remind employees of the program:

Publicize successful hires. In many companies, all employees, with the exception of recruiting staff and senior personnel, are eligible to participate in the referral program. But when higher-level employees do refer individuals, companywide e-mails typically are sent out to announce and recognize their contributions. Their efforts also can be acknowledged at special meetings or luncheons.

Use paycheck stuffers and the company newsletter or intranet to publicize the ER program. Announce special events, such as giveaways or quarterly drawings, as well as the status of the overall program and the status of individuals referred. This should be done on a weekly basis via e-mail, the company intranet or written reports.

Keep the rules simple. Complex submission rules will dissuade employees from participating. Try to create guidelines that are easily understood, but make sure that you address problematic issues, such as how to deal with a situation in which two people claim to have referred the same candidate who is ultimately hired.

Maintain clear records. By time-dating each resume that has the properly filled-out referral card, for example, you can lower potential problems. Keep data that list the referral, the date, the name of the candidate, all pertinent candidate data, copy of the resume/application and copy of the referral form. Also, when the status of the referral changes, update accordingly.

Liven up your job postings. Write job postings with savvy and style, says SRAs Morehart. Write them like an ad agency wouldenticing, dynamicand give the neat details of working for the company. And, she says, give employees easy access to openings and job descriptions.

Kick off the ER program each year. This is particularly effective if you have a new theme, or a revised look that fits your culture. Primedicas top management wore See Green sunglasses the day of the ER kickoff. Other employers host ice cream socials and provide information at the event.

Use frequent giveaways to boost communication. Some employers use the staggered approach for the cash payouts in this way. Others give out T-shirts, water bottles, CD holders or other small items in addition to the regular cash awards. Even e-mails can help build awareness. For example, at the bottom of e-mail correspondence, Johnson & Johnsons Gilbert provides this message: eferralWho have you referred?

Offer bounty bonuses. Microlog has boosted awards up to $5,000 for senior-level technical people, says Barbara Joltin, HR manager.

Primedica announces See Green Specials for hard-to-fill positions or jobs it wants to fill quickly, says Kline. I send out an e-mail that explains the special and the fact that the cash award is doubleinstead of $500 after 90 days, the cash award is $1,000.

Consider using an ad agency to develop high-quality materials. Smaller advertising boutiques often offer reasonable rates and work at stretching the dollars. For example, Partner.com, the agency that created the materials for AmeriCredits Youve Got Friends program, avoided the royalty fees for stock photos by using low- or no-fee Internet-available photos.

We look for ways to fit things into the budget, says Robyn Mabry, an HR consultant. The royalty fees for stock photos can run $600 to $700 per photo. We also printed the posters digitally, then laminated them. This saved printing timethey were produced in 48 hours instead of four daysand the expense of four-color press.

Christy Parker, creative manager at Alstin Advertising Inc., says that the See Green campaign cost about $8,000, which she says is cheap compared to results. You would pay that for a quarter page newspaper ad in the Sunday paper, she says.

Build momentum. Offering prize drawings on a quarterly basis is a popular tool. Digineer saw the number of submitted referrals quadruple in one month when a drawing for two free airline tickets was held. Anyone who referred a candidate for a current job opening got a chance at the drawing.

Another way is to use the new-hire orientation program to build momentum. Many employers use this opportunity to communicate more thoroughly about employees recruiting efforts. Often, follow-up collateral is sent to new employees via the paycheck envelope or perhaps through a separate reminder mailing to their home.

Given the current conditions of the economy, is it really beneficial to spend time and energy on an employee referral program? Yes, according to Primedicas Kline. This program would be effective no matter what the economy is like, she says.

Perhaps the most valuable feature is the prescreening of candidates by employees before interviews, which creates a more qualified pool of applicants.

Michelle Neely Martinez is a contributing editor for HR Magazine. She can be reached via e-mail: martinezmn@starpower.net
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