Expanding Employee Referral Networks Increases Competitive Advantage

By Roy Maurer May 27, 2015
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Extending employee referral programs (ERPs) to include an organization’s alumni, contractors, customers, vendors and partners produces more hires and higher-quality candidates, according to a new survey.

“Talent acquisition leaders consistently say that referrals are the most valuable external candidates their teams get. When something works, it’s natural to ask, ‘How can I get even more hires from my best source?’ ” said Mary Grace Hennessy, chief product officer for SmashFly Technologies, a recruitment marketing platform provider.

SmashFly conducted the online survey in April 2015. It included responses from 114 talent acquisition and HR professionals, 74 percent of whom were manager-level or above.

Among respondents, 77 percent said they currently have a formal employee referral program, and on average, 32 percent of new hires—and the highest-quality candidates compared to other sources—originate as referrals, according to the survey.

According to CareerBuilder, 82 percent of employers rate employee referrals above all other sources for generating the best return on investment; 88 percent of employers rated employee referrals above all other sources for generated quality of new hires.

“ERPs increase the credibility of your talent pool and grant recruiters access to a unique, quality talent network. Recruiters who have realized the value of a strong ERP are working with a significant competitive advantage,” said Kelly Robinson, founder and CEO of Broadbean Technology, a sourcing and recruitment technology company.

Over half (57 percent) of the organizations with formal referral programs limit their program to referrals from employees only. But the SmashFly survey illustrates that expanding the referrer pool beyond your current workforce increases the volume of leads without decreasing quality: 43 percent of organizations that reach beyond employees to invite referrals from their entire organizational network generate an average of 36 percent of hires from those referrals—an increase of 28 percent over employee-only programs—and report 8 percent higher-quality referral candidates.

“Just think about how you make purchase decisions as a consumer—you ask your friends and co-workers for their opinions and recommendations,” said Hennessy. “A modern referral network taps into everyone that an organization knows to get not only more referrals but also more insight that will help them make better hiring decisions.”

About one-third (35 percent) of organizations without a formal referral program reported that they are trying to start one. According to 44 percent of respondents, lack of budget and resources to offer rewards and manage referrals are impeding them from creating referral programs.

Tracking Referrals, Measuring Results

About one-half (53 percent) of respondents use an applicant tracking system to manage referrals. A quarter (24 percent) of respondents use a spreadsheet and 15 percent use a standalone referral tool. Eight percent replied that they didn’t know how referrals were managed.

Only 23 percent of employers surveyed had “absolute” confidence in their referral tracking method, followed by 32 percent who were “pretty confident.” A substantial 45 percent fell between “somewhat confident” and having “no faith” in their referral tracking methods.

“You have to have a performance measurement for every area of spend, and employee referral program management isn’t free,” said Robinson. He suggested using social media tools to measure the performance of social networking ERP initiatives. “You can see who is saying what, and what kind of impact it is having. You can see the impact that your referrer shares are having, and if the impact is converting to quality talent leads. Real-time reporting clarifies how you can improve ERP scheme performance,” he said.

Rewards

Organizations must offer their referrer network the right rewards and incentives to show value and encourage future participation, Robinson said. “If you want to reach the relevant, quality talent in your employee networks, you’re going to have to make their participation worth their while,” he said.

A significant majority (86 percent) of respondents to the SmashFly survey provide a bonus payment for successful referrals. Five percent provide a gift and another 5 percent give recognition only. One percent said they offer no rewards for referrals.

Robinson advised against relying on one-size-fits-all rewards “that can be very hit or miss,” and recommended increasing the incentives for high-performing referrers.

Recommendations

In addition to expanding your referrer pool to include alumni, contractors, customers and vendors, SmashFly made the following recommendations to maximize referrals:

  • Allow multiple people to sponsor the same candidate.
  • Allow people to make general referrals, not just referrals for a specific job.
  • Ask sponsors to provide a formal recommendation, and not just a name, to ensure quality.
  • Keep referrals open-ended and not limited by the date the referral is made or when the job is posted.
  • Communicate transparently with referrers on the status of their referrals and rewards through an online sponsor portal.

Roy Maurer is an online editor/manager for SHRM. Follow him @SHRMRoy

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