Knowing Versus Thinking: Your Employee Referral Program Isn’t as Good as You Think

By Dr. John Sullivan & Master Burnett

Over the past six weeks, we have attended eight large conferences that focus on or relate to talent acquisition. On the agenda in all but one were sessions dealing with employee referral best practices (and Master Burnett and Gerry Crispin will be leading a discussion of referrals at ERE’s March 23-25 conference in San Diego).

Since we have invested a great deal of time investigating both the design and performance of programs in hundreds of organizations, we always make it a point to check out such sessions.

After struggling to sit through nine presentations and listening to countless uninformed opinions, we have to lash out at the masses of professionals who manage employee referrals in their organizations yet remain woefully unaware of what constitutes outstanding, good, average, and woefully ugly program performance.

Below Average Isn’t Great By Any Measure

The first observation that left us absolutely dumbfounded was the fact that nine out of the eleven companies presenting (some sessions were panels) hired significantly fewer employees via their employee referral program than the average company, and that one presenter didn’t even know what percentage of external hires their program produced.

You may think that hiring 1:5 external hires through your firm’s ERP is a good thing, but our research (nearly 700 programs strong) shows that the natural rate of referral (that achieved with no formal program at all) is 16%. Generic programs, those with ad hoc management, often produce 24-27% of external hires. Formally managed programs produce on average greater than 34% of their organizations’ external hires and strategic programs now often produce 48% or more.

Volume of external hires alone doesn’t distinguish a great program, and on that note we congratulate most of the speakers we encountered. All of the programs being highlighted had design elements that were put in place to specifically address organizational weaknesses. Some program elements focused on making the program more visible among remote employees who work in field roles; some focused on drawing more attention to urgent needs; and others on addressing past issues with poor administration of the program. While the design elements could certainly constitute “better practice” when the scope of consideration is local, none were addressing elements that characterize “best practice.”

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Your Opinion Isn’t Always Right

Another common misconception that popped up frequently in session Q&As and post-session discussions was the notion that employee referral programs negatively impact diversity slates. Two presenters even went so far as to acknowledge this notion as fact. Few things disturb us more than when people in program-management roles make decisions without verifying assumptions and testing hypothesis. The research is very clear on this issue: 89% of the time employee referral programs produce diversity slates as diverse or more diverse than the organizations overall sourcing efforts. In the 11% of cases where referral programs produce less diverse slates, the organizations are almost always hiring a mass quantity of blue collar workers in geographic regions with low diversity.

The Rush to Social Media

It’s no secret that we love social media and see it as a phenomenally powerful way to dramatically improve nearly every key talent management activity in the enterprise, but simply adding social media broadcasting capability to employee referral programs is not by itself a best practice. If only 17% percent of your employees are active on social media, investing a great deal of time and effort in socializing your program ignores the masses that could be tapped with far simpler solutions. Doing something just because everyone else is doing it is never a good reason, yet it’s really the only reason the vast majority of speakers could articulate for investing in social media enabled ERP tools.

Step Up

If you manage your organization’s employee referral program or influence it in some way, you need to step up and accept responsibility for managing the design and performance of the program. Numerous studies demonstrate that a well-managed employee referral program can accomplish many things; unfortunately, too few organizations establish goals for their program and then design them to be able to accomplish them.

Want to know where your program stands? Participate in the 2010-11 Dr. John Sullivan Employee Referral Program Design and Performance Benchmark Study. Participation is free, as are summary results. Data collection kicks off Novmember 15, 2010. Pre-register to participate at http://bit.ly/ERPStudy.

Dr. John Sullivan, professor, author, corporate speaker, and advisor, is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high-business-impact talent management solutions.

He’s a prolific author with over 900 articles and 10 books covering all areas of talent management. He has written over a dozen white papers, conducted over 50 webinars, dozens of workshops, and he has been featured in over 35 videos. He is an engaging corporate speaker who has excited audiences at over 300 corporations/ organizations in 30 countries on all six continents. His ideas have appeared in every major business source including the Wall Street Journal, Fortune, BusinessWeek, Fast Company, CFO, Inc., NY Times, SmartMoney, USA Today, HBR, and the Financial Times. In addition, he writes for the WSJ Experts column. He has been interviewed on CNN and the CBS and ABC nightly news, NPR, as well many local TV and radio outlets. Fast Company called him the "Michael Jordan of Hiring," Staffing.org called him “the father of HR metrics,” and SHRM called him “One of the industry's most respected strategists." He was selected among HR’s “Top 10 Leading Thinkers” and he was ranked No. 8 among the top 25 online influencers in talent management. He served as the Chief Talent Officer of Agilent Technologies, the HP spinoff with 43,000 employees, and he was the CEO of the Business Development Center, a minority business consulting firm in Bakersfield, California. He is currently a Professor of Management at San Francisco State (1982 – present). His articles can be found all over the Internet and on his popular website www.drjohnsullivan.com and on staging.ere.net. He lives in Pacifica, California.

 

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6 Comments on “Knowing Versus Thinking: Your Employee Referral Program Isn’t as Good as You Think

  1. In a Global War for Talent, Until organizations pay high commissions to internal recruiters, this conversation, will be just that, “a conversation”. PLEASE (I will get on my hands and knees and beg) learn from your talented colleagues in the 3rd party Recruitment space. Best, Brian-

  2. @Dr. Sullivan:
    “I’m shocked, shocked that there’s so much ignorance in this establishment!” As I have often said: the GAFI Principles of “Greed, Arrogance, Fear, and Ignorance/Incompetence/Inefficiency” dominate large organizational recruiting.

    @Brian: quite correct. IMHO, until internal recruiting gets full credit for ER hires, there will be either indifference or resistance to ER. Furthermore, a company that doesn’t work to have employee referal as part of each employee’s duties (and meaningfully and substantially reward them for it) isn’t completely serious about it. I find it perplexing (and very “GAFI”) where firms are willing to spend $20k on an agency fee but not willing to spend $5k on an employeee referral bonus for the same position.

    Cheers,

    Keith

  3. John points out that referral programs have numbers or metrics available for those who want to invest in measurement discipline and operate at the level of evidence versus opinion. There is plenty of data that suggests referrals work and make sound business sense. And, just like the issue of diversity, there are other dimensions of referral process effectiveness that can be quantified.

    In a hiring environment using pre-employment assessment, it is possible to examine the relationship between quality of hire and quality of referral. In one client analysis, we were able to document that individuals scoring higher on the assessment tended to refer individuals who also performed well. And as one might also conclude, those who scored less well referred candidates with similar performance results. It is important to create referral behaviors from those more likely to generate high value candidates. Read more http://bit.ly/cN8xQG

  4. Sullivan’s correct – unmeasured, unspecific referral plans don’t provide enough value. Why? Lots of reasons, but don’t underestimate that many employee referral programs were designed and implemented as add-ons to the recruiting process. Just as noteworthy is that many programs came into existence when recruiting had reached low points or some other critical need forcing additional avenues to bring in candidates.

    Companies should also not overlook that low, organic employee referrals often signals that employees aren’t willing to recommend friends who are already in a decent situation. Think even good employees with bad bosses or some other unaddressed issue refer close friends into that same situation? Not likely.

    I can offer three traits I’ve seen with some of the best referral programs I’ve seen:

    1) Employee referral is targeted to a specific need and places a high premium on critical positions/skills while having a nominal incentive for all other positions. The key though is that referrals made my employees who were bringing in a candidate that would end up being a same unit/department co-worker received the premium incentive. Bottomline – we wanted people referring others that they wanted to work with not just people they knew.
    2) Employee referrals were tracked, and there were extras for people who referred multiple hires. Seems that keeping people engaged by making referrals more than a one-and-done activity worked. More than 50% of the referrals came from the same people – people who cared most about building the team. The bonuses were paid out 50% upon completion of initial assessment (probation) period and 50% after six months of employment. I would like to have seen an additional kicker for people who earn significant promotions, but no one was ever willing to go that far.
    3) Referrals were measured and results were made public to all employees. Employees will help build the team if you let them know how.

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