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Assessing Employee Referral Programs: A Checklist

Posted By Dr. John Sullivan On September 12, 2005 @ 12:00 am In Advice and How-Tos | 1 Comment

By now, everyone has heard the praises on employee referral programs and how they can produce outstanding results with regards to cost, speed, and quality of hire. While these continue to be the driving factors behind the rampant adoption of employee referral programs (ERPs), as recruiting tools they also deliver a number of other, often overlooked benefits that should be considered when designing, managing, and measuring the effectiveness of the program. Such benefits include increased new-hire success rates, insights into employee moral and pride (as seen through program usage statistics), and more focused use of recruiter and management time, which is enabled by offloading a portion of the sourcing, screening and assessment load to the greater employee population. Because the number of things a referral program can impact is so large, it should come as no surprise that most ERPs perform well below their potential. The relative poor performance of most programs can be attributed to one or both of the following reasons:

  • Poor program design
  • Poor program execution

From an outside advisor’s perspective, recruiting managers underutilize, under-appreciate, and under-fund most ERPs ó despite the fact that in many organizations referral programs produce at least 30% of all hires. This lack of effort in optimization may be partly attributable to a false perception that a program is performing well if it produces results inline with the averages published in widely available benchmark studies. Unfortunately, any failure to optimize the performance of a tool with the efficiency and effectiveness of an ERP is a failure nonetheless, even if output is inline with the averages. Firms with best practices in employee referral routinely attribute ERPs with generating between 50% and 75% of all hires. The key to optimizing these programs is to periodically assess them both using metrics and design feature comparisons against best practice programs. If you want to avoid the all-too-common pitfalls that most programs face, or if you just want to elevate your referral program to “world-class” status, here is an audit you can use. Elements of a World-Class Employee Referral Program A world-class employee referral program:

  • Has as its primary goal to become “world class” and to provide only exceptional quality referrals (whose work is known directly by the referrer) for key jobs.
  • Has a proactive program that actively “seeks out” individuals and asks them for targeted referrals.
  • Educates and demonstrates to employees and managers the necessity of employee referrals as an essential tool in guaranteeing business results and assuring that everyone on the team is a winner.
  • Emphasizes the use of branding and viral marketing in driving referrals.
  • Utilizes referral rates as an indication of employee morale and internal brand strength.
  • Uses split samples and statistics to demonstrate both the effectiveness and the dollar impact of an effective employee referral program.
  • Contains a continuous improvement element and a feedback loop to continually drive improvement to the program.
  • Prioritizes jobs and managers and focuses their efforts on top performers in key hard-to-fill jobs.
  • Realizes that speed and high touch are essential and, as a result, processes referrals first and treats them as special candidates (24-hour acknowledgment time).
  • Measures and rewards managers for excellence in referrals within their team.
  • Identifies candidates’ “job-switch criteria” as part of the referral process.
  • Identifies and informs employees when target candidates are most likely to consider an opportunity using statistics and algorithms.
  • Requires the referrer to assess and prescreen candidates for cultural and skill fit.
  • Encourages employees to limit referrals to people they know to be as good or better than themselves.
  • Has a feature where an employee’s “next referral” is weighted based on the success of previous referrals.
  • Takes into account global differences in cultural behavior and provides appropriate design variants when in use globally.
  • Involves the CEO, who touts the program frequently in his or her internal talks and speeches.
  • “Weighs” and expedites referrals, based on their likelihood of producing a top quality hire in a key position.
  • Provides education and information to participants in the program on a persistent basis regarding how best to approach possible referrals and pre-sell them on the opportunity.
  • Frequently communicates with both the referrer and referee regarding the status of their referral.

Don’t be frustrated if your current ERP doesn’t contain most (or any) of these features. Instead, look at them as a roadmap that you can utilize to transform a good program into a great one. Design Features of Excellent Referral Programs An excellent referral program will exhibit the following design features:

  1. The entire referral process is web-based and paperless.
  2. The program periodically measures the satisfaction rates of referred candidates/hires and referring employees.
  3. The program tracks the on-the-job performance of referrals, and it gives an added bonus if the employee is rated as a top performer at the end of a predetermined time period.
  4. The program includes a method to incorporate referrals from non-employees (vendors, consultants, ex-employees, and even spouses and customers).
  5. It has a formal process for encouraging employees who attend conferences and seminars to generate referrals from those events.
  6. It actively discourage “average” referrals and referrals for non-critical jobs.
  7. The program prevents or blocks bottom performers from actively submitting referrals.
  8. It encourages and specifically targets the referral of top performers from key competitor firms (who are also likely to be ready to move).
  9. It accepts referrals for certain key positions, regardless of whether there is a current opening.
  10. The ERP identifies “super-knowers” in a function or industry (well-connected individuals) and utilizes them as part of the referral process.
  11. It measures and encourages referral participation by business unit, in much the same way that charitable-giving program participation is encouraged and measured.
  12. It distributes a “best to worst” list of company-wide departmental referral performance in order to embarrasses dawdlers.
  13. The submission of “names” only (i.e. no resumes) for top candidates is accepted and encouraged (top performers will often opt-out of a bureaucratic process).
  14. All managers and HR professionals are eligible to participate and offer referrals (in non-conflicting situations).
  15. The utilization of employee referrals is part of the manager’s bonus criteria.
  16. Hiring managers have direct access to the candidate referral database.
  17. “Relevant” jobs are “proactively pushed” to employees who are most likely to know a top performer.
  18. Drawings and contests for prizes are used as well as guaranteed bonuses for every referral that is hired.
  19. The reward varies depending on how critical the job is.
  20. The program features a similar “internal” referral program to encourage internal movement within the company (intra-placement).
  21. Top candidates who are not initially hired are maintained in a database (where relationships are built over time). These referral turndowns are treated like customers. The firm must be honest to the referring employee and the candidate on why they weren’t selected and what they can do to become better qualified. Referral resumes become a permanent part of the company’s traditional recruiting database, and top candidates are automatically be considered for other jobs.
  22. New hires in key positions are asked for referrals on their first day on the job.
  23. The applicant’s job references are used as a referral source.
  24. The ERP program is supported and at least partially funded by marketing.
  25. The program has a specific emphasis on targeting and successfully hiring diversity candidates into managerial and other “key” positions.
  26. The program allows referrers to email open job descriptions to their friends.
  27. It utilizes “identify the expert” software (e.g. ActiveNet) to identify knowledgeable employees within the firm who are likely to know the best in a particular targeted field.
  28. It has a program feature that asks successful referrers which approaches or sources they have found effective in identifying their candidates. That information is used to educate other employees at “lunch events” or departmental meetings.
  29. There is an appeal process for individuals who feel they were unjustly denied a referral bonus.

Common Problems Associated With Referral Programs Even established employee referral programs run into problems. Some of the most common ones you should plan for include:

  1. Recruiting managers assume that the status quo program is working, without constant monitoring and evaluation using metrics.
  2. The program suffers from cumbersome administration, rules, and regulations.
  3. The volume of referrals isn’t managed carefully, which causes “chatter” to obscure quality candidates.
  4. The reward for referrals is nonexistent or is too low to effectively induce referrals.
  5. The referral process requires that a resume be presented before a referral can be processed.
  6. The marketing aspect of the program is not “re-energized” periodically.
  7. Inadequate mechanisms are present for resolving disputes over who “gets credit” for duplicate referrals.
  8. Referrals are underutilized (or not supported financially) because of a misguided “feeling” that they have a negative impact on diversity.
  9. Individual recruiters ignore or underutilize referrals (because they didn’t source the candidate themselves).
  10. The reward process offers slow, split, or delayed payment of referral bonuses.
  11. Even though employees might have good intentions, the program fails to educate them about where and how to find referrals and how to “sell” the firm.
  12. Non-monetary recognition is underutilized and minor awards or recognition are not provided to employees with unsuccessful referrals.
  13. Too many non-key jobs are included in the referral program.
  14. The referral programs is not integrated into other recruiting and HR programs.
  15. There is no process to handle individuals who abuse the referral program or violate its guidelines.
  16. The program fails to require first-hand knowledge and assessment of the referee’s work, and as a result, most referrals turnout to be “strangers” who need detailed assessment to determine if they are qualified.

Metrics to Assess the Effectiveness of Referrals In order to ensure that you get your metrics right, it is critical to involve your finance department early in the process of creating and implementing effective program metrics. Some metrics you may consider proposing include:

  • “On-the-job” performance of referral hires (measure and compare the ERP’s performance ratings to other sources of candidates)
  • Program ROI
  • Retention (turnover rate) of referral hires
  • Percentage of all hires who come from referrals (variant: percentage of key jobs filled by referrals)
  • Manager/referee/referrer satisfaction with the referral program
  • Percentage of diversity referrals/hires (especially in management and key jobs)
  • Process time by step (delay from referral point to interview date, which results in fewer top performer hires)
  • Employee participation rate in the referral program
  • Cost per hire (as compared to other sources)

Conclusion It’s important to realize upfront that although referral programs can be great, most are just mediocre. If you want your program to be world class, you need to start at the design phase and make sure that you design world-class features into it. Once it has been operationalized, it’s important to continually audit the program and the process in order to ensure that it meets its goals and objectives. The use of metrics, feedback loops, periodic audits, and continued vigilance is the only way to guarantee that the program and its results will continually improve.


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