Spend the Summer Rebuilding Your Referral Program and Reap a Bounty of Benefits

I have a suggestion for you . . . dedicate your summer to re-building your employee referral program. Now is an ideal time to invest in program design and rejuvenation, as in most cases, chaos surrounding the new year and year end is a fading memory and distant nightmare.

It’s also a great time because economic growth is just starting to ramp up, and with the growth of social networks and an unbelievable array of new recruiting tools available, opportunities abound. Why wait ’till competition for talent is once again über intense; focus now on optimizing a recruiting program with proven results and minute probability of failure. A recent poll conducted with several state-level SHRM chapters across the nation indicates that a majority of organizations are already dealing with significant double-digit growth in staffing needs, and anticipate that requisition volume will continue to grow throughout 2011. Unfortunately, those same organizations report that budgets are already stretched and that the recruiting workforce hasn’t yet recovered.

With that in mind, a key concern on every recruiting leader’s mind should be: “how do we increase recruiting capability and capacity to improve results without placing added burden on an already under-resourced function?” Luckily, it’s an easy question to answer. Retool your employee referral program and start managing it to produce the results you need.

The Many Benefits of Employee Referral (If you need further motivation!)

Having spent more than a decade advising staffing leaders and reviewing the performance of hundreds of staffing organizations, I can attest that when managed well, no other sourcing channel can come remotely close to producing the results of an employee referral program. Unfortunately, what most corporate leaders and recruiting leaders for that matter have experienced are poorly designed, loosely administered programs that despite their ad hoc nature still produce 1:4 hires on average. If you are going to invest the time in rebuilding your program, go big, go bold, and build a business case referencing the proven benefits of a world-class program listed here.

Organizational Benefits

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  • Quality of hire — while accurately measuring quality of hire is a subject of much debate in many organizations, what is not, is that no matter what method used, on average, hires produced through the ERP rate the highest.
  • High-volume capability — even without formal management, the typical employee referral program produces 1:4 hires. When formally managed, several leading organizations have proven that the ERP can produce 75% or more of the organization’s external hires needed.
  • Higher candidate quality — data shows that on average 1:5 (1:3 in best practice organizations) employee referrals produce a hire. When compared to other sources, ERP candidates are of significantly higher quality than the average applicant. The reasons for this are simple: no employee in their right mind would refer someone who would make them look bad, who would negatively impact their team, or who wouldn’t fit inside the organization. The primary benefit to the organization of higher candidate quality … fewer people have to be turned away, decreasing the probability of damaging the employer brand.
  • Lower attrition rates — turnover can bread instability, and instability leads to non-optimized performance. Because hires produced through the ERP enter the organization with already established social connections, they not only become productive faster, but they turnover less frequently. ERP hires are also 3.5 times less likely to be terminated than hires produced through other sources!
  • High-impact hires — a world-class program targets the attention of the organization to quickly fill mission-critical, key, and revenue-generating roles, producing an immediately apparent impact on organizational performance.
  • Improved diversity — contrary to popular belief, a well-managed employee referral program does not negatively impact candidate slate diversity. It actually improves it.
  • Improved morale — producing a majority of external hires through the employee referral program requires a large volume of employees to be actively mining their networks and talking about the organization and what makes it a great place to work. All that talk reminds employees daily about the little things that may otherwise go unnoticed, keeping the workforce engaged and improving retention.
  • Improved network learning — another key benefit of promoting employee referral is that it gives professionals an excuse to proactively seek out and network with other professionals. While not all of those relationships will result in an application, a good number will produce professional interaction, sharing, benchmarking, and competitive intelligence.

Recruiting Function Benefits

  • Less recruiter time required — on average, sourcing consumes roughly one-third of a recruiter’s time. ERPs essentially outsource sourcing to the organization’s employees and produce a higher quality applicant stream that requires less administrative time than candidates from other sources.
  • Broader sourcing network — because your employees interact with professionals throughout the industry every day, the combined professional and social networks of your employee population dwarf the reach of your professional recruiters. In addition, the existing relationship and trust that your employees have built with individuals in their network make it easier for employees to convert their contacts into recruiting prospects.
  • Improved perception — because your employees live the job daily, what they say is likely to be viewed as more authentic than messages on your corporate website or those espoused by individual recruiters. Employee can often provide more detailed and current information about the job and the team than recruiters who service multiple org units.
  • Accelerated time-to-hire — well managed ERP processes are proactive; in other words, they seek out referrals when needed instead of relying on ad-hoc referral flow. By using alert processes and proactive priming exercises, the program can pull applicants into the staffing lifecycle when needed to decrease time-to-hire.
  • Global scope — the social and professional networks of your employees are now likely to be global, so while many other sources focus on regional populations, ERP can scour the globe for top talent.
  • Improved college recruiting — because referral programs can be successfully applied to college recruiting, where applicants are extremely well-connected, your college recruiting results could improve significantly, especially at schools that you can’t afford to physically visit.
  • Lower costs — expanding the use of ERPs or focusing them on roles with traditionally higher cost-per-hire — i.e. management and technical roles — can dramatically reduce overall recruiting costs. In addition, well-designed referral programs deemphasize large referral bonuses, often producing hires at a cost-per-hire equal to or lower than average.
  • Manager satisfaction — a no brainer; if you could review fewer applicants and make a higher quality hire, wouldn’t you be happier?
  • An increased appreciation of the recruiting function — effective ERPs make recruiting highly visible, and as a result, can make the recruiting function a continuous topic of positive conversation for a change. Well-designed programs cause employees to develop a feeling of ownership for the hiring process, and introduce employees to both the difficulties and benefits of recruiting, increasing their understanding of and respect for the function.

Final Thoughts

When you decide that the time has come to rejuvenate your recruiting function, focus your limited time and resources on programs with the highest immediate impact, lowest cost, and smallest chance of failure. You have to get it right the first time, and fortunately, all of the data indicates that employee referral stands out as an opportunity above all others. If you want to look good fast and you can’t afford a long learning curve or to suffer from a major failure, there really is no other choice.

Network With Fellow Program Managers

I’m listening! Some of you have reached out in recent weeks and indicated that you are knee deep in evaluating your program, devising proposed changes, and planning to launch a rejuvenated program this fall. To support you, in addition to repeating my program design and performance benchmark study, I’ve created a new networking group for employee referral program managers on LinkedIn. Join, share your issues, concerns, what you have learned, and collaborate with your peers on what makes a kick-ass program.

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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7 Comments on “Spend the Summer Rebuilding Your Referral Program and Reap a Bounty of Benefits

  1. Great article, and timely as you sugggest. You know a company has a great culture when the employees are the leading source of new candidates, and they are not doing it for elaborate bonus checks. Rather, when they are doing it because they genuinely LIKE the place they work at(even if the referral bonus is small to none), you have something special going on.

  2. @Dr. Sullivan:

    “Why wait ’till competition for talent is once again über intense?”
    As I have said elsewhere, we can define the Great Recession as being over for recruiters when there have been three consecutive moths of 7.0% or lower unemployment. I’ve seen no estimates that this is likely to occur for quite awhile. (http://web.rollins.edu/~wseyfried/forecast.htm/)

    “Less recruiter time required — on average, sourcing consumes roughly one-third of a recruiter’s time.”
    Sounds plausible- do you have figures that demonstrate this? Also, quality sourcing can be outsourced from your recruiters for ~$11.00/hr. I suspect that the ERP function (as it is rather administrative in nature) can be largely outsourced as well- I wouldn’t pay a recruiter $50/hr to handle the processing of ERP candidates. Also, the recruiters are unlikely to get credit for the ERP hires, so unless they are, there’s even more incentive to not have them do it. I WOULD pay that amount for a recruiter to set it up and oversee it.

    “Lower costs”
    As the sayings go: “‘Love don’t pay the rent’, and ‘Money Talks'”. IMHO, DO NOT have a ERP without substantial monetary rewards. In fact, work to develop an expectation that employees below Director-level will refer 1-2 hired employees/yr, and will be paid some thousand dollars/hire. As an employee, I would feel upset if a company were expecting me to refer people for free while pay 25% fees to contingency recruiters.

    Cheers,

    Keith

  3. An interesting, but rarely implemented, variation on the traditional corporate recruiting program allows for “confidential” referrals. This option may be appropriate for positions that are particularly difficult from a sourcing perspective, either because the skill sets involved are very hard to find or because the bar has been set at the level of “we need one of the best in the world” for a particular task. Confidential referral programs are much more challenging to administer but properly managed they can uncover candidates that otherwise would never be brought to your recruiters’ attention. Most experienced professionals have worked with first rate people that for one reason or another they are not comfortable referring through a traditional program. For example, let’s assume a position requires an extremely unusual combination of engineering skills. One of the engineers at your company might have worked with just such a person ten years ago. But if they haven’t spoken with them for nine years then it is very unlikely that they will be comfortable calling this person to ascertain their interest in exploring new opportunities. It is equally unlikely that they will want someone else calling this person up and using their name. A confidential referral program can provide an incentive for the engineer at your company to pass on the name of their former colleague and a structured framework in which to do so. Of course, this is a sourcing tool and not a full lifecycle recruiting solution. A recruiter or manager must still contact the potential candidates that come out of this program to find out if they have an open ear and then to sell them on the idea of applying for the position. Confidential referral programs should position themselves from the perspective of “who is the best person you know for this job” and not “who do you know might be interested in this job.” I have found them most effective when the confidentiality of the person making the referral is maintained even after the person referred has been hired. Most companies will never need to implement confidential referral programs. If you are looking to hire a Java programmer or accountant then it is unlikely that the time involved in setting up and managing such a program would be justified. However, for those corporate recruiters that find themselves tasked with hiring highly specialized scientific and engineering talent, confidential recruiting programs can source qualified potential candidates when traditional methods (online searches, postings, etc.) fail.

  4. @Keith Halperin
    “I’ve seen no estimates that this (end of the great recession for recruiters) is likely to occur for quite awhile. “

    There is a lot of danger in looking at macro level statistics, just as benchmarking against the average isn’t advised. While nationwide unemployment may exceed 7%, there are job families within many industries where unemployment is below 3% and organizations are being forced to consider labor alternatives. A good chunk of the unemployed in the US are unemployed not because jobs are unavailable, but rather because they do not possess skills or knowledge relevant to the jobs that are available.

    “Less recruiter time required… Sounds plausible- do you have figures that demonstrate this?

    Several organizations that benchmark recruiting process look at the labor hours required by recruiting lifecycle stage. In our own private client studies, rarely have we encountered an organization where less than 30% of recruiter time is consumed by sourcing. We would certainly agree that for high volume and transactional roles that quality sourcing can be outsourced, but we will not say that is the case across the board. In a world class referral program, handling the referral is about a lot more than processing the referral, it’s about servicing both the referrer and the referral to a service standard level significantly higher than average. While you personally wouldn’t pay a recruiter $50/hr to administer referrals, most of our best practice sample firms pay significantly more than that and have no problem with the business case or the ROI! All of that said, we agree, ERP administration is something that could be outsourced, particularly in small and medium sized firms without need for an FTE dedicated to proactive campaign development, program coordination, etc.

    “ IMHO, DO NOT have a ERP without substantial monetary rewards. In fact, work to develop an expectation that employees below Director-level will refer 1-2 hired employees/yr, and will be paid some thousand dollars/hire.”

    Thank you for stating that this is your opinion. While most referral programs do provide monetary incentives, there are a number of examples where organizations have built incredibly healthy programs without them. Some have relied on monthly/quarterly prize drawings, some have relied on performance expectations, and some have relied on a simple personalized thank you, but they work. Every organization must do what works best for their population and for some industries hefty monetary rewards are essential (professional and financial services). Yum Brands and a few select others have done exactly as you mentioned, they have held employees (managers in the case of Yum) accountable for producing a small number of referrals annually.

  5. Thank you, Master.
    “There is a lot of danger in looking at macro level statistics, just as benchmarking against the average isn’t advised.”
    Macro is where I live- I don’t care if this is the best year ever for a few exceptional recruiters; I care what the environment is for the vast majority for recruiters. I believe it’s
    very premature to talk about a competition for talent in most areas of the country for most positions.

    “We would certainly agree that for high volume and transactional roles that quality sourcing can be outsourced, but we will not say that is the case across the board. ”
    NOTHING is the case across the board. However, while I believe that there are some “purple squirrels” that require $50/hr sourcing, these are few in number, and likely to continually decrease, as “good enough” sourcing continues to improve.

    “While you personally wouldn’t pay a recruiter $50/hr to administer referrals, most of our best practice sample firms pay significantly more than that and have no problem with the business case or the ROI! All of that said, we agree, ERP administration is something that could be outsourced, particularly in small and medium sized firms without need for an FTE dedicated to proactive campaign development, program coordination, etc.”
    If you would be willing to pay someone $50/hr to do a given task(s), then it probably shouldn’t be outsourced. These are likely to be to high-touch activities. I think it sensible to have someone at a larger firm overseeing this type of activity in perhaps a project-managerial role.

    “While most referral programs do provide monetary incentives, there are a number of examples where organizations have built incredibly healthy programs without them.”
    Quite true, and there are a number of examples where organizations have successfully built programs doing virtually anything, but that doesn’t mean that it’s desirable. To me, a profit-making organizations that generously rewards the average employee for referring hirable candidates shows that it values their input far more than empty slogans from HR and Corp Comm do. ISTM that a company is well-served encouraging its employees to make as much money (in as many ways) as possible helping the company prosper; it shouldn’t be just the highest executives who benefit.

    One final note; there is much mention of “best practice firms”. What makes them “best practice firms”? Who determines that they are? A neutral group of independent assessors? A vote among a group of participants? The company itself?

    Once again, I appreciate the stimulating article.

    Keith

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