A Towers Watson survey found that 54% of the companies that participated had problems attracting employees with critical skills, regardless of the current unemployment rate. Of the surveyed companies, 37% report having trouble hiring top-performing employees. This indicates one of two problems—there is a shortage of people with the necessary skills, or there is an over-abundance of employers requiring too many skills.
Of these two problems, the one you can reasonably address is overcoming the shortage of highly skilled employees. Employee referrals are one of the most effective ways to find the talent you need.
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 understand the type of employee personalities and traits that will work successfully in 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 and 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% 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 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 on ways to build their online and offline social networks and use them to recruit superior candidates for your company.
- Dedicated staff enhances the value of an employee referral program. Larger companies will be more likely to have the assets for this. However, even the smallest company can build value from employee referrals if incentives are offered.
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
- a culture that honors, respects, and recognizes employees who refer qualified candidates
- contribute to an employee's favorite charity
- small incentives such as coffee mugs or stickers
Tips for Avoiding Problems With Employee Referrals
Provide initial guidance to employees for referrals. Some screening questions and criteria that can allow them to see if a candidate is basically qualified for positions will decrease the amount of low-hanging fruit brought in.
If you offer money for the referring employee, make sure they receive all of the money based on the policies put in place. You might consider not basing getting paid on whether the referral is hired, or lasts for a certain amount of time. This delays the incentive for your employee and is generally based on situations outside of their control.
Don't ostracize employees that provide referrals that don't work out. It was not their job to thoroughly screen, interview, and ensure the prospect was a 100% fit. Not every referral will be great, so encourage more referrals by thanking employees who bring them in regardless of the performance of the referred employee.
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 candidates.
Finally, organizations are woefully incompetent at providing feedback to employees for referrals. You should let the referring employee know what is happening each step of the way so that they can learn from the process and look for people that may be more successful. This also lets them know whether they should expect any incentives if offered.
Employee Referral Programs Work
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.
The financial or other incentives received from the employee referral program will be proudly displayed (or spent), and your company will benefit in productivity and employee satisfaction.