6 Tips for Effective Employee Referral Programs

​

NASHVILLE, Tenn.—Employee referral programs can be an effective way to hire talented people, and they can also be invaluable in the current talent acquisition environment, in which open jobs outnumber qualified candidates.

"How many of you have a close-knit group of friends that you think are the bomb? We all believe that the people we know and the people we surround ourselves with are the greatest people, and we should leverage that," said Aubrey Wiete, talent management consultant for Cincinnati Children's Hospital, who offered tips for improving employee referral programs at the 2019 Society for Human Resource Management Talent Conference & Exposition.

Wiete, along with Jenna Filipkowski, Ph.D., director of research at Human Capital Institute (HCI) in Cincinnati, shared six guidelines for crafting effective employee referral programs:

1. Give employees what they need to refer.

Using employees to promote your company brand can be helpful when done right. "The first step is acknowledging that, if you want to build a referral program that really works, you need to have a referral-worthy culture," Wiete said.

Lululemon, an athletic apparel company headquartered in Vancouver, Canada, treats every employee as a brand ambassador and provides all employees with the information and tools they need to fill that role.

"We ask all new hires to provide us with a list of 10 names from their personal network," said conference attendee Marissa Davenport, a talent advisor and recruiter at Neighborly, a global service-based franchise company in Waco, Texas. When the company has open positions, hiring managers review these contacts. If there's a potential match, managers ask the referring employee to introduce the potential applicant to both the company and the employment opportunity.

2. Set clear guidelines and expectations.

Make sure employees understand the referral program's guidelines and expectations, including who is eligible to participate in the program and receive rewards for referrals.

According to HCI research, of the companies it surveyed:  

• 78 percent provide the same reward for a referral whether the open position is executive level or entry level.  
• 60 percent allow all company employees to participate in the referral program. 
• 58 percent give preference to candidates who are referred by current employees.
• 55 percent accept referrals from nonemployees, such as customers or clients.

3. Offer incentives that motivate.

HCI research indicates that 74 percent of employers offer referral incentives. Of those, 92 percent offer cash, with a median award of $1,000. Awards of $500 are the most common. 

Consider the timing of the reward as well. Most employers hinge payment on a referred hire's staying employed with the company for a set period of time. Only 27 percent of employers offer a full reward immediately upon a referral's hire.

Aim for parity in these rewards so that a referral for an executive job doesn't pay substantially more than a referral for a lower-level job.

"We don't want the perception that one job is more important than another," said Davenport, whose company recently revised the amount of its incentive payouts for referrals to help achieve parity between departments.

4. Market the program.

Filipkowski recommended treating the employee referral program like an ongoing marketing campaign. Investing in marketing and communication plans for the program can increase the likelihood that employees will participate.

Groupon, a worldwide e-commerce marketplace based in Chicago, has a unique marketing approach for its employee referral program: Referred candidates get a coveted green Adidas track-style jacket after working for one year at the company. The jackets remind everyone that employee referrals have an impact.

5. Hold leaders and HR accountable.

One common complaint about referral programs is that HR sometimes fails to communicate with the referring employee and the candidate about the job status. To avoid frustration, share information with both parties, and keep them updated about the hiring process. Consider responding to every candidate referral within a set time, such as 10 days.

Senior leaders need to believe in the program and be a part of the design. To get this buy-in and find a program champion, give leaders data and feedback on the program's outcomes. Make sure executives understand the current competition for talent and the need to capitalize on employee networks. "The stakes are so high, and there is not enough talent to go around. How do we get these people in our door?" Wiete said.

6. Provide feedback on outcomes.

"Measure that [the referral program] is working or not working, and make adjustments as needed," Filipkowski said. Common metrics to capture include:

• The number of employees hired through referrals, compared to other methods.
• The number of qualified candidates obtained through referrals, compared to other sources.
• The rate of employee participation.
• The retention of referred hires, compared to other sources.
• The performance of referred hires, compared to other sources.