How You Can Inspire Great Referrals From Your Employees

An office manager talking to employees.
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 A Towers Watson survey found that 54 percent of the companies that participated had problems attracting employees with critical skills, regardless of the current unemployment rate. Of the surveyed companies, 37 percent report having trouble hiring top-performing employees. Are you looking for employee referral program ideas so you can start a program of your own?

You can overcome the shortage of top performing employees, which is expected to become even more intense over time when you create a work culture that inspires great employee referrals. Here is what works to garner employee referrals. The actions that will submarine your employee referrals are also covered.

Why Employee Referrals Are a Critical Component of Recruiting

Employee referrals are a critical component in your efforts to obtain and keep the best potential employees. Employee referrals provide better than average candidates because employees know your company culture and have an idea about what employees will work successfully in your organization.

Employee referrals also reflect on the referring employee who wants to be positively regarded in your organization. No employee wants notoriety for referring an employee who failed to deliver or contribute or fit within your organization.

Yet, despite their hype and potential usefulness, many employee referral programs fail to attain their program goal: superior employee referrals. 

Dr. John Sullivan, an internationally known HR thought-leader from California who specializes in providing bold and high business impact; strategic talent management solutions said the following. 

"Many recruiting managers with woefully under-performing programs think they have great programs and are somewhat shocked when they learn that, on average across all industries, 1:3 hires come from employee referral and that it is no longer uncommon for more than half of all external hires to come from employee referral in organizations with leading talent management functions..."

So, if your organization doesn’t have an Employee Referral Program (ERP) or has one that produces less than 30 percent of your external hires, you need to examine your referral program to determine why you are experiencing poor results.

Elements of Successful Employee Referral Programs

In his studies, Dr. Sullivan finds consistent factors in successful employee referral programs. Among them, are these:

  • The employee referral program is responsive. The referral program provides feedback to the preferred candidate within one - three days of the referral and the referring employee just as quickly.
  • The employee referral is given preferential treatment in the timeliness of the organization's initial contact, phone screen, interview, and the decision about hiring the employee.
  • The employee referral program targets hard-to-fill positions that are essential to the organization.
  • All employees are encouraged to make employee referrals, regardless of the position they hold.
  • Employee referrals are not just about incentives or a cash bonus. Successful employee referral programs are part of a company's culture of building a highly effective team and encourage employees to select coworkers who fit the culture and the company's work ethic. Employee referrals should enhance the referring employee's experience of work.
  • The organization pays attention to the employee referral program. Examples include interviewing referring employees to determine how they met the employee they referred, asking for referrals at employee onboarding meetings, and giving current employees referral cards to pass out when they meet a well-qualified potential employee.
  • Provide current employees with training about how to build their online and offline social networks and use them to recruit superior candidates for your company.
  • Dr. Sullivan also found that having dedicated staff enhances the value of an employee referral program. He mostly deals with large companies where this may be possible. However, even the smallest company can build value from and for employee referrers as just a part of an employee's job.

How to Encourage Referrals Without Financial Incentives

An employee referral program that does not offer financial incentives can successfully attract participants. For enthusiasm and an ongoing stream of referrals, companies need to emphasize the importance of employee referrals for their recruiting efforts.

Provide non-monetary incentives such as:

  • public recognition of an employee referral,
  • easy ways for employees to track the status of their referrals,
  • periodic banquets or lunch with the president to honor employees who make positive, qualified referrals,
  • positive feedback in performance development planning and daily performance feedback for qualified employee referrals, and, in general,
  • a culture that honors, respects, and recognizes employees who refer qualified candidates.

Dr. Sullivan's research found several novel approaches to paying incentives for employee referrals. Several companies contribute to an employee's favorite charity.

Others, rather than paying an employee a hefty incentive for a referral who is hired, offer small incentives for each employee referral, whether the referred candidate is hired or not.

Tips for Avoiding Problems With Employee Referrals

These ideas take care of the ongoing problems experienced by many poorly executed employee referral programs in which employees are rewarded for low-quality referrals. Or worse, employees are only rewarded for referrals that result in a hire.

Even worse are referral programs that only pay the referring employee all or part of their bonus after the new employee works out successfully for six months or a year.

Does it make any sense in an employee referral program to pay for low-quality referrals? Or, as is the case with many employee referrals, to pay an employee the promised bonus only after a referred employee is hired and successfully employed for six months to a year?

It certainly submarines any motivation that an employee might have had to make referrals when the incentive is paid only after two situations occur that he or she cannot control. When you make a bonus contingent on hiring the referred employee and the new employee succeeding on the job for six months to a year, you have potentially demotivated your referring employee.

Finally, organizations are woefully incompetent at providing feedback to the referring employee for referrals. Was the referred candidate interviewed? Rejected? Coming in for a second interview? You need to let a referring employee know what is happening each step of the way.

Undermining the organization's efforts at obtaining employee referrals, too, is the speed at which employee referrals are acknowledged and reviewed. Many organizations are miserably slow at reaching out to the referred candidate.

The Most Important Factor in Employee Referrals

The most important factor in employee referrals is swift candidate evaluation and feedback to the referring employee.

Encouraging employee referrals and successful employee referral programs are a win for organizations that gain qualified employees, a win for employees who get to work with qualified co-workers, and a win for referring employees who benefit from the recognition, or in some cases, the financial incentives of their employee referral program. Employee involvement is key to an effective employee selection process.