Referral System: Reshaping the Talent Acquisition Scenario

By SHRM India Content Team Jun 13, 2017

According to an iCIMS study, 24% of new hires originate from a referral, but a few companies see rates at nearly 40% on an average. Another study conducted by LinkedIn Talent Solutions states that nearly 55% of Indian talent leaders see employee referral programs as the top source of quality hire. Globally, employee referral programs continue to be viewed as a key source of quality hires, ranked third, at 32%, behind social professional networks (43%) and online job boards (42%).

These statistics clearly indicate that referral system, though a traditional source of hiring people, still holds prominence in the recruitment strategy of any organization even today.

Understanding Referral System

Commonly known as Employee Referral Program (ERP), it is a recruiting strategy through which the existing employees refer qualified candidates (friends, family or colleagues) for the vacant positions in their organization. In case, the referred person is hired, then the employee gets a reward for the successful recommendation.

Several organizations are already using the referral system successfully to hire prospective employees. For instance,

  • Infosys has a program called 'Refer-A-Pal' (RAP) to involve employees by the way of participation and competition to hire for lateral positions.
  • Tata Consultancy Services has a referral program called 'Rapid Hire' which provides 24*7 referral help desk to encourage employee referrals. The resumes are collected and provided on the spot screening followed by a preliminary evaluation and instant feedback.
  • Deloitte hires almost half of its experienced staff in India through referrals. It believes that a referral program helps it to tap into the vast network of its professionals to connect with talent that it might not have access to otherwise.

Why Organizations Use Referral System

Get high quality talent: The employees making referrals understand the workplace culture and ethics better. They know what kind of candidates their organization is looking for. Moreover, since their reputation is under the scanner, they will recommend only those candidates who can match the organization's expectations & culture, and are capable of doing a great job. This enables hiring managers to sift through lesser resumes and get a head start on promising leads. The positive relation between referrals and high quality talent was highlighted in a Jobvite survey – 8.6 out of 10 respondents said that referrals were the number one source of quality candidates.

HCL's referral campaign called 'Share the Joys of Working at HCL' was based on the fact that employees are not only the best brand ambassadors, but are also the best equipped to ensure proper fitment between the organization and the person they are referring.

Increase retention rate: Employees hired through referrals stay with the company longer (more than 5 years) than the candidates hired through other recruitment channels. They have a higher job satisfaction because they have already fetched insider information about the company's culture from the referrers. Further, the referrers are also not likely to quit the organization since they would want to get their friends settled and continue to work with them owing to a natural bonding and a sense of kinship.

Motivate employees: A referral policy helps employees to earn a reward over and above their compensation package. The mere fact that the organization values their contribution acts as a secondary motivator for them. The reward differs from one company to another. It could be a cash bonus, recognition in employee meetings/gatherings, gift cards, a certificate/plaque, vacation trips, movie tickets, redeemable points, or anything that the organization deems necessary.

Take the case of InMobi which has hired 50% of its employees through referrals. But, instead of providing cash rewards, it gives gifts or experiences like motorbikes, all-expense paid trips, etc to the referrers.

Lower cost of hiring: With decreasing budgets for hiring, there is a growing pressure on recruiters to take cost-effective approach to sourcing candidates. Employee referral system is undoubtedly one such method. It takes an average of 29 days to hire a candidate through referrals as compared to 39 days through a job portal. There is also cost saving on the job advertisings on different job boards or fee payment to external recruitment agencies. For example, Accenture saved EUR 600,000 in 3 months (cost of hiring through professional recruitment agencies) via employee referrals during one of its recruitment drives.

Seek passive candidates: Did you know that passive candidate form 75% of the total workforce across the globe? After China and the US, Indian companies (69%) are aggressively reaching out to passive candidates through proactive sourcing. This means that you are missing out on a vast and quality talent pool. However, it is challenging to tap the passive candidates. Your employees may know such candidates, can initiate the first point of contact and give you an access to passive candidates through the referral system.

Hire global talent: As organizations grow and expand across territories, they are always on the lookout for talent. Your employees may know someone who is looking for overseas opportunities or resides in the said location. So, employee referrals can prove to be a gold mine while recruiting global talent as well. In fact, in case of Dell, its global employee referral rate is 38% and over 50% in some locations. It has also witnessed 20% overall decrease in cost per hire over the past 3 years.

Latest Trends in Referral System

In this age of technology, big data and social media, the scope of the employee referral program has become dynamic and even broader. Let's take a look at the trends that are redefining the referral system.

Social referrals: Social referrals is the integration of traditional employee referrals into social media technology. When it comes to social referrals, Indian companies beat their global peers in finding quality talent on social professional networks. They are actively using the ability of social professional networks to identify employee connections for fast track the hiring process. 

To help organizations reap the benefits of social referrals, several vendors such as Zalp and RippleHire have designed specific platforms with inbuilt algorithms and analytics. Zalp is a SaaS based recruitment tool that automates the employee referral system, right from importing jobs from their Applicant Tracking System (ATS) to managing the reward payouts. Instead of manually promoting the jobs, recruiters and employees can share the job openings on all social media sites. RippleHire also uses cloud based platform to help organizations leverage employee referral through integration into ATS, social networking sites, gamification and analytics.

Mobile referrals: With 31% candidates in India applying for jobs via mobile and 41% viewing opportunities on mobile, optimizing employee referrals through mobile technology seem the next evident step for the recruiters. Mobile referrals work in a simple manner. The employees can access the company's referral program page or site on their handsets and upload/share the resumes of candidates they want to refer.

myREF is one such mobile-based employee referral platform that features referral campaigns, allows employers to leverage the personal networks of its employees, and influence and advocate job positions within an organisation. Employees can see various referral campaigns on the app, read the rewards and job criteria and refer people using the contacts in their phone book. Another platform is MobCast helps employees refer via mobile and track the status of candidates.

Referral metrics: Since employee referrals will gain immense importance in talent acquisition, organizations will want to measure the returns on their investment in referral programs. Companies will design specific referral campaigns and assess its success on the basis of how many employees participated, the turnaround time of processing the referral, new hire productivity & turnover and time taken to reward the employee who referred.

Gamification: Gamification will be also the next big thing in employee referrals. Gamification in referral programs will revolve around using thinking, learnings, and mechanics from games to increase employee engagement. Organizations will create elements of game like leaderboard, levels, challenges and points in their referral programs, allow the employees to share the game results on social media and hand out innovative rewards in lieu of successful participation or winning the game.

Shortcomings of Referral System

In spite of all advantages associated with it, referral system has its own limitations:

  • If not driven effectively, employees can spam the system with unqualified resumes and take a blind shot in the hope of getting a reward.
  • Employees have a limited peer network, and recruiting from the same can adversely impact the diversity of the workforce and innovation in the workplace.
  • HR may constantly get queries from the employees seeking an update about their referrals. Unless, there is a technology based referral system or an efficient screening process, responding to these queries can eat away into the time of HR.
  • Employees may not participate in the referral process if the rewards are not attractive or the guidelines are too stringent to qualify for a referral.
  • Referral system may lead to the formation of groups and create friction, affecting the organizational culture.

Building an Effective Referral System

Here are the steps to create an effective employee referral program:

  • Employee referral programs should be aligned with the core recruitment strategy.
  • There should be open communication with respect to the referral system or campaign. The employees must know about new job openings, exact requirement and rewards associated with it.
  • The process should be employee-friendly – it shouldn't take much effort on their part to refer or else they may not participate.
  • Rewards the employees for successful hires within the time frame promised.
  • Measure the return on the investment in referral system at regular intervals.

There is no denying that the referral system can do wonders for the organization. It is one of the best and cost-effective recruiting tools. However, to make it successful, it is equally important to incorporate new trends and drive it through technology.


Job Finder

Find an HR Job Near You
Post a Job


Choose from dozens of free webcasts on the most timely HR topics.

Register Today


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect