Updating Your Employee Referral Program – ERE Community Q&A

By Dr. John Sullivan and Master Burnett

On Wednesday, November 12, 2008, more than 900 members of the ERE community converged online for a webinar led by ERE author, Dr. John Sullivan. The webinar focused on updating your employee referral program. The popularity of the topic during a time when many staffing organizations are facing tough situations speaks to the immense role employee referral programs now play in the modern staffing function.

While several questions were fielded throughout the interactive webinar, participants submitted more than 70 questions on issues relating to program design, program operations, reward trends, and impact on organizational diversity.

To drive better understanding of world-class employee referral program practices and support continuous improvement of a sourcing channel that has become the dominant source of quality hires for many organizations, our response to the questions submitted throughout the webinar will be featured in five separate articles this week. (Where possible, similar questions were combined to reduce duplication.) The first five questions are included below, and there are 38 questions total.

Our responses to the questions proposed draw upon our advisory experience with more than 200 global organizations, an in-depth research study detailing the practices of more than 240 organizations, and an end-user research study that examined the experience of more than 7,400 employees and their respective referrals from 28 different organizations. More detailed guidance on program design can be found in a Design Workbook written by Dr. John Sullivan and available at drjohnsullivan.com.

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Those interested in truly developing a world-class program may also want to check out these past ERE articles:
Operating Referral Programs on a Limited Budget
Upgrading or Reenergizing Your Employee Referral Program
Employee Referral Program Killers
Budgeting for a World-Class Employee Referral Program
Metrics for Improving Employee Referral Program Effectiveness

ERE Community Q&A

The questions proposed during the webinar covered a great many aspects of operating an employee referral program including:

  • World-Class Program Design and Features
  • Program Reward/Bonus Trends
  • Diversity Impact
  • Using Technology to Support the Employee Referral Program
  • Specific Program Mentioned During the Webinar

Questions on Program Design and Features

  1. What is your suggestion for dealing with a company that may not be open to radical changes to the referral program, but obviously needs something to be done?
    Most HR departments are quite conservative, so resistance to change isn’t unusual! The one approach that seems to work everywhere is working with the CFO to build a strong business case for improving referrals. Top-performing programs produce tens of millions of dollars in positive business impact by filling key jobs faster, bringing in higher-quality hires, and producing hires who are statistically proven to stay longer. To make the business case for change, start by building out a comparison of on-the job performance using key jobs where the output of the position is already quantified and measured on a regular basis (sales and call center roles are often easy places to start). Then working with the CFO, do a side-by-side comparison demonstrating the average output of new hires after one year from employee referrals versus other external sources. If you have a well-designed program, the performance differential, when converted to dollar impact will be so significant that it will silence any critic. Review offer acceptance rates, new hire turnover, involuntary turnover rates, and the applicant:hire ratio by source to produce other compelling statistics to support your case for investing in strategically managing the ERP. I know of one firm where the estimated impact was $46 million in one year. In short, don’t expect anyone to welcome change unless you can “show them the money.”
  2. What about the life span of employee referral programs? Don’t they typically become less effective over time? The answer is yes and no! Our research revealed that in many organizations the employee referral program was implemented with a “build it and they will come” assumption. Unfortunately, for the average company, that isn’t always true. World-class employee referral programs rely heavily on encouraging employees to act when you need them to using effective communications and rewards. From that perspective, ERPs are essentially marketing efforts, and like all marketing efforts, they can become less effective over time if not managed. Organizations often launch their programs with a flurry of communications, then sit back and do nothing for a number of years; yes we said “years.” Our research found that the average employee referral program gets reviewed and refreshed on an average cycle of 32 months. Using average growth and turnover statistics for the United States, one can assume that during that 32-month period, 48.2% of the employees who were present during the initial program launch are no longer with the organization and have been replaced by new employees. Add to those new hires employees hired during that time for growth initiatives and it is relatively easy to see how a majority of the employees in the average organization may not be that familiar with the program. To further complicate the issue, 41% of employees who have participated in their organizations program indicate that they are either “not sure” or unwilling to participate again based on the poor experience they encountered previously. When you start to stack all of the statistics and practices together, it becomes very clear that most organizations manage their programs to produce mediocre results over time. Top-performing programs re-invigorate their programs quarterly and have very strict user experience quality standards in place to ensure that employees and their referrals are treated as they should be, with respect and priority! If communications and reward methodologies are not being used effectively to drive program engagement, then you could expect to see program participation start to decline within six months of a program’s launch. Left alone, the participation rate and percentage of hires generated via the ERP will migrate back to natural referral levels (where they would be with no formal program) within 18 months. If your program is producing between 12-18% of hires via employee referral, you are operating in the natural referral range. Programs producing 18-28% would place you in the ad-hoc managed range, 29-45% indicates formal program management, and programs producing more than 45% of hires via employee referral represent the strategically managed program range.
  3. How are other companies managing a referral program for alumni and retirees? Organizations have long understood that a great many “non-employees” have a vested interest in the success of the organization, including alumni, shareholders, top customers, vendors, consultants, etc. Unfortunately, many program managers and coordinators assume that participation in employee referral programs is driven by monetary rewards, so the idea of letting non-employees participate in the program becomes complicated with tax-related issues. What they say about assumptions is true, and you shouldn’t make them! Our end-user research, which polled the primary motivations of more than 7,400 employees who had made referrals in their organizations during 2007 revealed that only 11.3% were primarily motivated by the opportunity to earn bonus income. The primary motivation for more than 51% of those who had made a referral was the “opportunity to help out a friend.” More and more top-performing programs are moving forward with plans to open up their programs to non-employees. Instead of monetary rewards, they are going “old school,” with personalized thank-you notes, preferential treatment, discounts on company products, etc., none of which involve nasty tax issues! Maintaining the relationship with alumni via the employee referral program has another benefit. By communicating with former employees on a regular basis about what is going on in the organization and disclosing your critical talent needs, you may earn the change to “rehire” past top performers (known as boomerangs). These “alumni programs” are quite common in major professional service firms. Rather than approaching all alumni, target high-performers and individuals who formerly worked in hard-to-hire positions. These individuals know your firm and its needs and have the capability of making high-quality referrals even if they don’t return.
  4. Any advice for high-volume referral programs?
    Like all systems, employee referral programs can be designed to produce whatever results you want within reason. While we typically advise organizations to refine their programs to reduce overall volume and produce higher-quality hires in a small number of key jobs, many of the same concepts can be leveraged to produce a high volume of applications for high-volume roles. Professional service firms, banks, transportation companies, and other labor-intensive industries where revenue production is limited by the number of deployable human resources are all in need of high-volume referral programs. There are several program design elements needed to support high-volume referral programs, including:
    • A highly scalable infrastructure. High-volume referral programs must be supported by an administrative infrastructure capable of delivering a world-class program experience to all referees and referrals during huge shifts in inbound volume.
    • A strong communications function. High-volume programs must be able to communicate specific need/business case messages to distinct employee populations to drive participation in specific regions, roles, etc. when needed.
    • Role specific reward schema. Employees in high-volume roles often know exactly the impact they have on their organizations’ ability to meet financial and quality performance targets. For that reason, the reward schema in such organizations must be role-specific, and the business case must be strong for ee’s to participate.
    • Leverage technology. Processing several thousand inbound referrals and ensuring that each receives a consistent quality experience is a monstrous task. As referrals are not yet applicants, dumping them into the ATS is probably not the best way to manage them as a highly cherished population (applicant databases truly are huge pools of people, the vast majority of which your organization will never hire.) High-volume referral program managers should consider investing in CRM technologies to capture referrals as leads, segment referrals using multiple criteria, drive specific messaging to referrals based on criteria, and manage referral program workflow until the referral technically becomes an applicant.
  5. Advertising a raffle with a large gift (i.e., college tuition, car, vacation) sounds great, but won’t that encourage employees to refer people who aren’t necessarily top performers? Any reward schema that awards the chance of getting a highly valued reward will incent some degree of undesired behavior; the key is to balance the reward with process elements that dissuade such behavior! You want employees to actively be looking for great talent, to approach that talent, to pre-sell it on your organization, and to refer it, but for most organizations that doesn’t happen largely because the program design doesn’t drive that behavior. In the average organization, 37% of all referrals are virtual strangers to the employee making the referral. They may have been approached by someone they know to refer a friend of theirs, or they may have been approached by a total stranger online asking to be referred. In the average program, the ee’s only role is to fill out a small form that send a hyperlink to the applicant, who then fills out the same application anyone else would online. There are four key design elements needed to ensure quality referrals, elements many programs overlook:
    • Employee education. Organizations need to become much more specific when communicating with employees about what they need, and what they don’t want! Believe it or not, 87% of the employees that participated in our end-user experience research indicated that they are not satisfied with the amount of training with regards to making referrals that their organization provides. They want to know more about how to approach great talent within their networks, how to build a relationship with top industry talent they would like to add to their network, and how to better sell their organization.
    • Expanded employee role. How the typical employer leverages its employees in the typical employee referral program is truly almost criminal. Employers need to leverage the employee to pre-assess referrals prior to submitting them. The submission process must be revised to capture information on how the employee knows the referral, what about them makes them a good fit for the organization, what about their skill set makes them a good fit for the role they are being referred for, and last but certainly not least, where the employee would rank the referral’s ability to perform on a five-/10-point scale if hired.
    • Feedback. We know that labor attorneys often advise organizations to say very little about why someone doesn’t get hired, but if you did everything labor attorneys advised, chances are you would never hire anyone! World-class referral programs are all about leveraging personal relationships, relationships that need to survive even if a hire is not generated. Ensuring that the employee remains willing to participate again, and that they can better screen talent in the future requires that you provide feedback to them on why their referral doesn’t get hired. (If you think they are not already making excuses that could or could not be factual, guess again.)
    • Consequences. Everything you do in life comes with them, but for some reason most organizations left them out when it comes to flooding the referral program with crap. While we are against implementing an encyclopedia of rules, we are all for making it clear that participating in the employee referral program is a privilege, one that can very easily be revoked for employees incapable of acting like a mature adult committed to the success of the organization.

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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