by Kathy Buscher

One of the most effective ways to source talent for your organization is through an employee referral program. Beyond delivering economy (i.e., the lowest cost-per-hire), referred individuals come vetted by current employees who are uniquely qualified to identify candidates who fit the company’s mission and culture.

Most employers see the advantage of an employee referral program. In fact, the Society for Human Resource Management (SHRM) estimates that one out of two employers offer a formal employee referral bonus program. Of those that do, SHRM states that 25 percent of all hires result from employee referrals.

The Human Capital Institute (HCI) indicates that 74 percent of employers offer referral incentives. Some 92 percent offer a cash bonus, with $1,000 being the median amount. Their research finds that $500 bonus awards are the most common.

 Is an Employee Referral Program Right for Your Company?

An employee referral program is a win-win-win. The employer, the referring employee and the new hire all benefit.

Recruiter.com estimates employee referral programs can save companies $3,000 or more per hire. In busy Human Resource Departments, a referral translates to one less hire the team must identify and recruit. Also, as mentioned above, many companies find that referrals are a better fit.

Beyond the potential monetary bonus, such programs allow every employee, regardless of level within the company, to submit a referral. The employee feels a sense of community not to mention deriving satisfaction from being able to contribute to the company’s success. Plus, an often overlooked benefit is that they get to pick their coworkers.

The new hire arrives at work knowing more about the company than the typical new employee, easing anxiety. Plus, the individual has an automatic friend, which facilitates integration and can be a motivational force leading to on-the-job success.

Important Considerations When Establishing a Referral Program

Companies considering implementing a referral program should keep these factors in mind:

• Determine the ultimate goal of establishing a referral program. Is it to save money on recruiting costs? Is it to hire the best talent? Is it something else?
• Create parameters for gauging program success based on the program goals.  
• Establish an initial goal for the number of successful referrals. Increase that goal each year.
• Set standards for measuring the quality of referrals arising from the program. If, for example, the referral bonus is paid in 60 days, are referrals staying with the company longer?
• Determine a referral bonus amount and attach a waiting period to bonus receipt, ideally 60 to 90 days on the job.
• Keep the internal referral process simple. Recruiters review hundreds of resumes every week. They don’t need unnecessary forms to review, too.
• Develop written corporate policy for the referral program and communicate it to all employees.

Ways to Ensure Program Success

• Always accept employee referrals, even if there is no current vacancy.
• Communicate with the employee who made the referral on its status as soon as possible, preferably within a week.
• Provide employees feedback on why particular referrals were good or bad. It will help improve their referral skills going forward.
• Fast-track referred candidates through the hiring process but evaluate them on the same criteria as non-referred candidates.
• Notify the hiring manager that a candidate is an employee referral.
• Celebrate successful hires beyond the cash bonus by including items in the company newsletter or emails. It benefits both the new hire and the employee while reinforcing the notion that employees are uniquely positioned to identify good candidates.
• Maintain a current listing of job openings, preferably on your company website. Select certain positions for publication in the company newsletter or other vehicle. Companies do a good job of sharing open positions externally but not so internally.
• Consider allowing “Friend of the Firm” referrals (i.e., alumni, contractors, customers, vendors and partners). Doing so could yield higher-quality candidates and more hires. Award gift cards rather than cash for successful referrals through this channel.

What If an Employee Referral Isn’t a Fit?

My approach is to always conduct a phone screening of the referral even if I feel the candidate’s qualifications do not match the position requirements. In this way, employees feel that their referral was given every chance.

If the referral is too far afield, I’ll be honest and tell the candidate “You only have 75 percent of what we need.” If possible, I’ll provide leads for jobs at other companies that I know about through my network.

Other recruiters, after reviewing the resume, will opt not to conduct any interview and simply notify the employee there won’t be an interview.

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A referral program is an excellent way to build a sense of community and teamwork within a company. It also is an economical way to hire skilled and reliable workers who come with the best recommendation of all: that of a current employee.

Kathy Buscher, SPHR, SHRM-SCP, is Director of Human Resources at Electrosoft Services, Inc.