Keith — We too like to stress to organizations the importance of building a recruiting culture in which an expectation is set that it is everyone’s responsibility to help build the organization via talent recruitment. As far as paying them to do so, some organizations achieve phenomenal referral rates and offer no monetary reward, other offer huge bonuses and achieve only minimum success. Our research found that the average bonus among top performing programs was not significantly greater than that awarded by the average organization, and was actually less in organizations recruiting large volumes of non-exempt hires.

Craig — Your portfolio approach to budgeting and seeking funds for the ERP is practical, and one that a number of organizations use, but we prefer an approach that positions funds allocated to the ERP as an investment, one in which a real ROI will be calculated at some point.

Jonathan — We thought we would find your hypothesis true when we started the research, but the data didn’t support the hypothesis. There are a lot of truly great companies out there that never apply for recognition such as FORTUNE’s Great Place to Work list, many of which had both participation rates and hire from ERP rates significantly higher than firms earning such designations. That said, the bulk of the companies on the GPTW list do fairly well when it comes to garnering referrals, but they by no means lead the pack!

Kevin — Your experience is one commonly manifested in the policies of programs performing at the average level. Our research found that opening the program up and allowing nearly all levels of management and tenure’s of ee’s to participate was a key factor in driving program performance. Many of the top performing programs allow managers all the way up to the senior level executive to make referrals for positions outside their line organization and earn a reward. Most of those programs also make it possible for such managers and executives to elect to donate the reward to the organizations charity of choice.

Mark — We get that pushback all the time too, most often from people who don’t have an analytical bone in their body! We did look at the observed performance differential among ERP hires versus non-ERP hires in our top performing program sample as mentioned in the article. While I cannot disclose organization names, one well known brokerage firm found that retooling the program to cover the administrative basics mentioned netted a return in productivity valued at $13.7M. The cost of the retooling…$136,000. Because not all of the top performing programs had full sets of data, we were not able to do the analysis across the entire sample, but of those firms that were willing, the results were all similar. We calculated the approximate ROI of all firms participating in the detailed analysis at roughly 2700% ROI.

Max — Great comment on communicating with CFO’s, we too have found that most get it immediately when the scenario is expressed in their terms versus HR speak.

When I am talking to clients about calculating the ROI on a given program I try to get them to accept that an employee is worth more than their actual salary, and that every day that a position goes unfilled the company is losing that amount of money. A CFO gets this instantly. If our monetary value to an organization was exactly what we earn there would be no profit.

Once you have established a multiplyer then it just becomes a math problem. If you can hire a position through an ERP, you not only (hopefully) reduce the cost per hire, but you increase the revenue of the organization by the employee’s salary times the multiplyer. If you can show that your average fill time is reduced, this number can get big, fast.

It can get even bigger if the company is filling a position through a contractor or outsourcing.

I hope this helps.

-Max Wallingford

If I may, I’d like to further recommend that you keep an eye on ROI for what it is: an elementary concept, or at best, a good starting point. What I have seen on the Recruiting and Sales/Mktg side of the fence is that many vendors and managers make cases in and only of ROI, which is deceiving (and not truly indicative of the whole picture). This is why I say that: Because there are 2 major factors that must also be weighed if you want to knock the socks off of those with budgetary approval:

a. Payback Period (i.e. ROI isn’t always positive if the projected returns are 3 yrs out, and/or can’t be discounted back to Net Present Value (NPV) A rudimentary Discounted Cash Flow tool on the web will help you determine the NPV of projected ROI).

b. The COST OF CAPITAL (This is so important that my minor reference here doesn’t do it justice. This is why Cost of Capital (CC) is critical: If your projected return % is not greater than the CC, then you’re destroying value.

ROI does not account for the cost of capital . . . when you do account for this, the concept becomes EVA, or Economic Value Added. This is a brainteaser to an extent, because while ROI can be positive, EVA can be negative).

So the next time you head to a budgetary approval meeting, talk about EVA and show them on the fly that you discounted the projected ROI to current Net Present Value, upon which you accounted for the Cost of Capital.

You might get a promotion on the spot! :)

Joshua Letourneau
Mg Director
LG & Associates Search / Talent Strategy
BLOG: http://www.lgexec.com

You stated, ‘Some companies tie the success (or failure) of a referral to the referring employee during the referring employee’s performance review the following performance review cycle. This helps ensure highest quality referrals’

Maybe I’m not understanding this completely. I would think that would be a sure way to reduce the number of referrals, as the failure of a referred person will be a black mark on the employee’s review.

This is another case of misplaced responsibility.
How can the person who referred the candidate guarantee their success?

If I don’t get to participate 100% in the hiring process of the person I referred, I surely would not allow myself to be held accountable for a hiring mistake.

When in this lifetime are we going to return to a process that gives Hiring Managers the credit or blame for the hires they make??? Corporate America is stuck in this absurd mode of pointing fingers at HR, or the test the candidate took, or the illustrious panel that condicuted the interviews (and which could never agree 100% on the candidate). And now, they are going to blame the person who referred the candidate, when all they are trying to do is help the company?

When one owns a small business, one quickly learns how to accept responsibility. Not surprisingly, well-run small businesses minimize their mistakes. The owner is more careful because he/she is on the hook for decisions made. Give that same responsibility to Hiring Managers, and you will find out who your best performers are, and will ultimately make fewer mistakes.

Of the programs I studied I also found that most companies only pay referral award dollars to more junior employees. The more senior employees are EXPECTED to refer talent and it is one of the metrics used in their annual evals

I think one of the steps that we’re all challenged with at times, is how do we make the simple but compelling case to get the $$$$ for a program?

Is it as basic as what I outlien below or showing something more..
1. We spent 50% on the web as a source and it got us 10% of our hires
2. We spent 10% on ERP and it got us 25% of our hires
3. We want to spend x% more or reallocate from the web spend for ERP and project increasing the hires from that source from 25% to 35%

Having that simple ROI tool to show the cost savings, efficiency of spend and productivity can make all the difference. This might be a great next article if you haven?t written it already. This is also a tool I recommend to vendors to help potential clients make the case internally.

Cheers,