1006 HR Magazine: Employee Referrals at a Keystroke

By Jennifer Taylor Arnold Oct 1, 2006

HR Magazine, October 2006





Your employees could be your best source of job candidatesespecially if your computer system efficiently handles and tracks their referrals.


Destination Hotels & Resorts had an employee referral program in place when Robert Mellwig, SPHR, vice president of human resources, joined the company in 2004, but it wasn't much, he says. "There was the framework, but there was no formal process. And it was entirely paper-based."

Mellwig decided that the Englewood, Colo.-based hospitality company, with about 7,800 employees at 33 sites across the country, was missing a huge recruiting opportunity. So he expanded the scope and depth of Destination Hotels' employee referral program (ERP) and automated it all within a new applicant tracking system (ATS) and careers web page.

Just about every aspect of the company's ERP has been changed, Mellwig says, and the technology component "has directly contributed to the employee referrals we're seeing." Today, Destination Hotels is "getting more referralsand more qualified referrals." In fact, more than half of the company's new hires now come from employee referrals, Mellwig says.

Experts say that many companies, however, fail to realize the benefits that technological improvements can bring to their employee referral programs. Those benefits can be obtained by tapping today's sophisticated technological offerings or by using existing technology in new and creative ways.

Maximizing Referral Potential

"Employee referrals aren't just a good source of quality hiresthey are the No. 1 source of high-quality hires," according to John Sullivan, a management professor at San Francisco State University and owner of the HR consulting firm Dr. John Sullivan and Associates. Sullivan says his research shows that candidates referred by employees accept open positions 15 percent more often than candidates from the open market. Referred candidates also outperform candidates hired through Internet job boards more than threefold, in terms of retention and termination rates.

In addition, last February's annual Sources of Hire Survey, which is produced by the online recruiting and hiring consultancy CareerXroads, stated that employee referrals make up "arguably the No. 1 ... source" of external candidates who are hired.

The best way to maximize such employee referrals is through better use of technology. Automating the ERP process is one of the most cost-effective ways to harvest qualified candidates, with the extra benefits of boosting employee morale, increasing retention and shortening the time it takes new hires to get up to speed.

Mellwig has seen it happen at Destination Hotels. "Our time-to-fill has decreased from 90-plus days to less than 30 days," he says. "Individuals who join us through referrals stay the longest, and they tend to perform at or above the level of individuals hired from other sources."

The pluses may be even greater for highly specialized positions. Nikki Hall, SPHR, chief HR officer at PreVisor, a pre-employment screening and assessment company in Atlanta, says: "About half of our positions are hard to fill because they're highly skilledsenior tech positions and psychologists." Referrals are especially good for them; about half of hires for hard-to-fill positions come from referrals.

In the game-development division of Redmond, Wash.-based Nintendo, employee referrals are most important, says Nintendo recruiting specialist Helen Fu. "Most of our hires there are referred by other employees. It's a specialized skill set, a tight-knit community."

(For information on potential legal limitations of employee referral programs, see this issue's Legal Trends column.)

Keep It Simple

A sophisticated referral system doesn't have to be complicated; in fact, if you want your employee referral program to work, experts say, make it easy to use.

At Destination Hotels, employees used to have to find and complete a paper form, or take time to call HR. Now, employees can refer candidates with just a couple of clicks on the company's intranet site, using an applicant tracking system from Emeryville, Calif.-based SonicRecruit. Employees can make referrals at their convenience, whether they are at home, traveling or working at a company site on the other side of the country.

Many applicant tracking and recruiting systems offer this type of referral functionality, which enables employees to forward postings to friends or to refer friends for positions directly.

Simply offering the functionality is not enough, however. To get results, the functionality must be fast and easy to use. For example, the referrals web page should be easily accessible, not buried on a company's intranet site, and employees should be able to submit a referral with just a few clicks and keystrokes.

"We've made it a lot easier for people in our organization to make referrals," Mellwig says. "We really looked at the way we frame language on our site and changed the navigation. We now have an entire section dedicated to referrals that links directly back to our job search mechanism."

Communication Is the Key

After the referral is captured, the next critical phase is quick and frequent communication. "That's the No. 1 thingthe feedback that the referring employee gets," Hall says. After the ERP at PreVisor was improved and automated, she says, the number of referrals going to HR went from one or two each quarter to as many as 15. A key driver of the increase is the fact that employees can "see that the person is getting contacted," Hall says.

Sullivan agrees that timely communication is key, and he recommends that both referring employees and referred candidates be contacted within 24 hours.

An ERP solution can accomplish that easily by automatically triggering an acknowledgment e-mail to the referring employee as well as an e-mail to the referred candidate. The e-mail to the candidate can contain a link to the job posting on the careers web page, along with login instructions.

Sullivan recommends communicating with the referring employee through every step of the process. "Every time the status of the candidate changes, notify" the referring employee, he says: " 'Here's what happened, here's what the candidate can expect next.' "

Automatic messages don't have to be impersonal; they can be friendly, even conversational. "Say 'Thank you, you really helped the team,' and give the referring employee a timeline" for when a hiring decision will be made, Sullivan says. "It wows people."

Some systems, including the one used by Destination Hotels, allow referring employees to include a personalized message when forwarding a job posting to a friend. "Just about everyone has 'send to a friend,' " Mellwig says. "But now we can customize the note from the sender."

As a complement to e-mail, technology can be used in creative ways to provide high-impact communications. For example, Sullivan recommends having your CEO record a series of voice mail messages thanking employees for successful referrals. These messages can then be distributed during off-hours through the voice mail system. "There are ways that technology can deliver a personalized experience," Sullivan says.

Employees and referred candidates often have high expectations of the referral experienceand indeed they should, experts say. "The implication to the friend is, 'Because I'm an employee, you're going to get preferential treatment,' " Sullivan says. "So you can't treat them the same as someone walking in off the street. It has to be a differentiated experience."

Follow up that immediate acknowledgment with quick qualification of the candidate and, if appropriate, direct contact. At PreVisor, referred candidates are flagged in the ATS system when they enter "employee referral" in the source field, giving them first priority for qualification. "They're certainly going right to the top for the first step of the process," Hall says. This approach makes business sense, because research shows that referred candidates are more likely to be well qualified, are more likely to accept the job and will get up to speed faster.

Leveraging the Technology

Don't look for one technology solution to meet all of your referral needs; instead, look at unique ways to leverage existing technology to improve your referral results. For example, data from the performance management system can be used to identify top performers, who can then be targeted for referrals. "Good people refer good people," says Nintendo's Fu.

Some ERP systems can automatically draw data from performance management systems and flag referrals that come in from high-performing employees. When a direct interface isn't possible, a table within the system can be built manually to identify top-performing employees in critical areas.

Other companies provide a portal to their careers page that takes employees to a separate listing of jobs seeking referrals. "This way, the employee referral system is not clogged by jobs that are easily filled," says Mark Hamdan, president and CEO of HRsmart, which offers this type of function in its ERsmart software.

Managing Rewards

Technology also has a role in managing bonuses for referralsa commonplace reward. According to a recent survey from Culpepper and Associates, an Alpharetta, Ga., firm that provides data on compensation and benefits, 91 percent of technology and life sciences companies, for example, have bonus programs to reward referring employees. Sullivan says his research shows similar percentages in other industries.

Although most ERP systems cannot yet interface with payroll systems to facilitate bonus payouts, there are other ways technology can help manage referral rewards. HRsmart's ERsmart, for example, allows the system administrator to establish a range of awards that can be given at any point in the hiring process and to manage the awarding process.

One unique element in ERsmart is a points program, which the system tracks and manages for referring employees. "You might give five points just for the act of referring someone, 20 points if that person applies, another 20 if that person gets qualified," Hamdan says. "It increases excitement with employees by taking away the jackpot effect." Accumulated points can then be redeemed for a variety of prizes.

At PreVisor, every employee who refers a qualified applicant immediately receives a $10 gift card. From there, Hall uses her referral system to track referring employees and enters all their names in a quarterly drawing to win an iPod. At the end of each year, there's a drawing for a flat screen television. (In addition, employees who refer new hires receive a cash bonus of at least $1,000.)

Size Doesn't Matter

Although employee referrals can help with recruiting at any company, until recently only the largest employers were using high-tech tools to manage the process. "Large companies adopted the online recruiting technology first. Over time, as technology matures, it becomes more affordable," says Tom Tillman, director of product marketing for Sage Abra HRMS, an HR and payroll software provider based in St. Petersburg, Fla. "These solutions tended to be fairly expensive because they are complex."

Now, advances in technology, along with the wide availability of the application service provider (ASP) model, have made much of this sophisticated functionality available to smaller players. Instead of paying for expensive customization, HR departments can start with an out-of-the-box product and "turn on" the functionality they want to use while "turning off" the rest.

"We build it so it's configurable by the user," says Ian Alexander, vice president of marketing and public relations at SonicRecruit. "We don't have to customize the code; clients can make changes themselves."

Costs for these solutions vary, depending on their scope. Stand-alone employee referral systems are less expensive; larger ATSs or recruiting systems that include ERP functionality cost more. Some stand-alone systems are accessible for as little as 20 cents to 50 cents per employee per month, assessed on a sliding scale based on size. Annual costs for a full-service ATS or recruiting system can run into the mid-to-high five figures.

Both approaches may also require additional costs for services such as set-up and support. The one-time set-up charges for a stand-alone system may be calculated at five to 10 times the total monthly fee; annual service and support agreements for a full-service ATS or recruiting system are generally calculated at 20 percent of the annual cost for the system.

Many companies, however, already have the necessary technology and simply need to consider using it in a new way, Sullivan says. "Ninety percent of functionality needed to power a world-class system can be found in standard CRM [customer relations management] systems," he says.

Smaller companies with little HR technology (and low budgets) may be able to partner with their sales team to leverage the capabilities of their sales software; by viewing referring employees and referred candidates as sales leads, they can use the software to remind recruiters to initiate communication, manage candidates' status and track employee referral efforts. Taking advantage of this capability, along with creative data mining of existing HR technology, can help a smaller company develop a world-class referral program with no capital expense.

Keeping Track

Once companies automate their employee referral systems, they also gain a wealth of data that can be used to show the impact on business operations.

Technology makes it easier to track and measure the results of an ERP, yet most HR departments don't capture that information, research shows. "About 60 percent of companies measure nothing," says Master Burnett, managing director of the Sullivan firm.

Experts recommend tracking referred hires over time to assess their longevity and performance in comparison with hires from other sources. "You have to compare performance; that's where you'll see the difference," Sullivan says. His research shows that referred hires perform at levels 3 percent to 15 percent above the levels of hires from other sources. "Even a 1 percent difference across a company can mean millions of dollars," he says.

Also calculate cost-of-hire and time-to-fill for referrals in comparison with other candidates. At PreVisor, Hall reviews referral data each quarter, looking at the quality of hires and return on investment. This data not only can help assess the effectiveness of the ERP but also can help make the case for more future investment in referral management.

Referral patterns also can alert HR to potential problems. "If you have a division that isn't referring, ask, 'Why aren't you telling people how great we are?' " Burnett says. "What does that tell us about that department?" Some HR experts also advise tracking which employees most often provide referrals for candidates who are hired and become successful employees.

Creative Thinking

Maximizing the potential of employee referrals requires coordination among a variety of technological and human resources. By combining targeted solutions with the capabilities of technology already in-houseand mixing in a little a creative thinkingany HR department can take advantage of this underutilized recruiting gold mine.

Says Sullivan: "It's not hard to do; someone just has to think about it."

Jennifer Taylor Arnold is a freelance writer in Baltimore.

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