Please Refer Me! A Guide to Establishing an Employee Referral Program

Recruitment is tough even in times of higher unemployment and recruiting professionals need to resort to non-traditional methods of finding candidates. The costs of placing ads in either newspapers or on websites can be high and can lead to a glut of unqualified candidates that need to be weeded through to find the hidden gems. The process can be exhausting and some recruiters have become jaded by the onslaught of candidate interest. Its times like this that we have to dig into our HR Bag of Tricks and find ways to get what we need while saving
time and money. A good way to find qualified candidates is to use an employee referral program (ERP). An ERP uses your existing employees to help find “warm” candidates who might be contenders for open positions. There are advantages and disadvantages to ERPs and these types of programs should be looked at carefully to put the right plan together for your company.

Here are some potential pros to using an ERP

  • Reduced recruiting costs by lowering advertising expense
  • The generation of warm leads by employees reduces days to fill
  • Increased engagement among existing staff who feel invested in the company where their
    friends and families work
  • Increase in retention rates for all staff which results in a quantifiable reduction in
    turnover costs

There are many ways to implement a fruitful ERP; the key is to first look at your company for guidance on what aspects would work best for you. An incentive to have employees refer qualified – and potentially those passive candidates which all recruiters crave – is to tie the referral to some sort of bonus. Depending on the position or the company the budget for referral bonuses might vary. A good rule of thumb is to put parameters on the referral to maximize the cost of the bonus. For example, require the referred candidate to remain employed for a
specified period of time (i.e. 90 days) or achieve a production benchmark (i.e. meeting 100% productivity requirements) before the payout is made. The potential payout should be well communicated to your employees so that they understand what types of position(s) are needed and what they will get and when. Even offering a cash referral bonus can quickly become cost effective when tied to production standards or time with the company. And your employees will even help you keep the new hires employed so they can get their payout. You might
even want to look at doing some sort of bonus for the new hire. The value of this program can be seen almost immediately in many situations.

Now with the good comes the bad. There are a few things that might tarnish your stellar ERP so be aware and make provisions for these potential situations. If your company has been guilty of historical discriminatory hiring practices or has goals to increase minority representation, an ERP might not help. Employees tend to refer people like them and if these are not the type of candidate you are looking for then the ERP might cause more work than it is worth. Also, your shining star employees might refer a dud and your steady eddy employee might
refer your next CEO. Essentially, employee perceptions of what might be valuable for the company may not be reality for the hiring manager. Communication of the ERP and specific information about the values and characteristics of the wanted applicant pool can help alleviate these types of situations. There is also a possible opportunity cost with an ERP. What if your perfect candidate does not know anyone who currently works at your company? Have a contingency in place for those candidates that may not find your opportunity through word of
mouth. In other words, traditional job postings might be necessary to complement the ERP.

ERPs are a great, cost effective way to mine and generate warm candidates who hit the ground running and are engaged. The business case for ERPs is also solid and can be an easy sell to management. The program can be self-funded and can be easily aligned to business needs. Take time to look at the way an ERP would work best for your company. They are certainly worth the effort.

Don’t forget to CELEBRATE!


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