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Making Your Employee Referral Program Work Smarter — Follow-Up Questions and Answers, Part 2

by
Dr. John Sullivan
Jun 28, 2010, 5:59 am ET

Dr. John Sullivan and Master Burnett

Based on the registration response and volume of questions submitted during a recent ERE webinar on Making Your Employee Referral Program Work Smarter, clearly many organizations have retooling their programs on their agenda. With nearly a question a minute coming in from the hundreds in attendance, responding to all simply wasn’t possible. What follows is Part II of the public questions that were submitted (grouped, combined, and summarized) and our brief response to each. Part I is here. Looking for more detail? Use the comments functionality following this article to let us know and we’ll do our best to develop future content along those lines.

Employee Referral Program Management-related Questions

Who manages ERPs in most organizations?

Amongst the organizations in our best-practice sample, it is much more common for the employee referral program to be managed by a dedicated program manager as opposed to a program committee made up of recruiting department staff. This is a key differentiator between best-practice programs and typical programs, many of which are unmanaged or managed by committee.

How much time do best-practice firms dedicate to this, a lot of the suggested elements seem resource heavy? Is this a full-time job within most organizations?

In most organizations ERP management is not a full-time job, but that is because in most organizations ERPs are unmanaged! We don’t really concern ourselves too much with what most companies are doing; we are, however, very interested in what best-practice companies do! Even in smaller best-practice organizations, managing the employee referral program is a dedicated task. In larger organizations not only is the role of program manager a full-time role, it is most often one supported by a multi-disciplined team. The key thing to remember here in that in most organizations less than 5% of the total recruiting budget is allocated to the ERP, which on average produces 1:4 hires. Best-practice firms simply realize that since ERPs produce one of the best yields of any source, it makes business sense to reallocate funds formerly earmarked for less-effective sources. In our best-practice sample, the percentage of the recruiting budget associated with employee referral averaged 31% in 2007.

How many people should be dedicated to the employee referral program for the program to run optimally?

Obviously, the size of the team needed depends on the size of your organization and the design of your program. Ideally, you look at what activities you need to accomplish to generate the flow needed to produce the number of hires needed and calculate how many man-hours will be consumed to accomplish that. For best-practice firms, even smaller ones, it’s not uncommon to have at least three people dedicated to the effort and to rely on help from recruiters and shared administrative staff. A better rule of thumb is that if the source is producing 50% of hires, it should get 50% of the sourcing resources.

You have repeatedly mentioned a dedicated referral team. What roles comprise this and what is each responsible for?

While there is no standard structure for an ERP management team, most of the organizations in our best-practice sample rely on a combination of roles that include:

  • Program Manager (strategy, design, performance modeling/reporting, integration, etc.)
  • ERP Communications (workforce segmentation, campaign development/execution, core process communication, broader program marketing)
  • Program Coordinator (primary contact, referral screening/routing)
  • Program Administrator (reward administration, data entry, conflict resolution)

There is a pretty equal split in our best-practice sample between organizations that maintain ownership of a candidate within the program through disposition and those that transfer or route a referral to a line-aligned recruiter for disposition. In organization that maintain ownership of the candidate, program coordinators are often full life-cycle recruiters allocated to the ERP.

Can ERP principles and approaches be used internationally with the same results?

As few as five years ago, it was difficult to put together a global referral program that was executed consistently across borders, but that is not the case any longer. Around the world, especially in fast-developing economies, ERPs are either the dominate source of hire or the fastest-growing source of hire. Globalization of management practices, largely Western in nature, is also widespread. Remember that social network adoption is also widespread around the world, and that many of the activities behind top-notch referral parallel top-notch networking. The key to success is to institute a consistent program around the world while still allowing for some local flexibility, particularly in communication and reward structure.

Can you give provide more context around why the percentage of top-performing employees referring is a key metric?

A best practice is to proactively approach your employees and ask them for referrals. Most firms that run the data find out that the very highest-quality referrals come from top-performing individuals working in that job family. Given this, it only makes sense if you are going to proactively approach employees and ask them for referrals, that you first approach those who are most likely to know and have strong relationships with other top performers (your top-performing employees in that job family).

I would like more details on recommended software packages for tracking and managing referrals.

While we have many great relationships with a number of vendors, we are vendor-neutral and do not recommend one solution over another. However, we are fanatical about pointing out that vendors must develop products for mass-market appeal, and what benefits the masses is rarely effective for best practice firms.

That said, administering a best-practice ERP is work-intensive and technology can and does play a major role in making it feasible. While we disagree with the design of some aspects of products available today, we champion others.

Most of the solutions developed specifically to support ERPs today either focus on enabling email/social media-based campaigns or administering the application workflow. The modules from the major ATS providers focus more on the latter, using a model of engagement we detest, but provide stronger workflow management. The vertical specific solutions focus much more heavily on campaign management and social network sharing, but often lack robust tracking and administration functionality.

A third category of solution, CRM systems, often provide robust functionality on both fronts, but are complicated to get running and not always developed specifically for use by recruiters.

There are literally hundreds of existing and stealth-mode ventures developing products to support social recruiting and employee referral, many of which will launch products in 2010. While we would love to tell you about them, that might get us in trouble! Firms you may want to check out with products or services available today include: SelectMinds (sponsor of the ERE Webinar), Jobvite, IdealHire, Peerlo, LinkedIn, TMP, Jobs2Web, and your major ATS providers.

Can you share what some of the admin processes are that differentiate best-practice firms producing 45% or more of external hires from referrals and typical programs?

The answer to this question really is what we have been writing about for sometime, but quickly summarized they are as follows:

  1. Programs are formally chartered and managed
  2. Program strategy developed to specifically support segments of the overarching staffing strategy
  3. Program measured against specific pre-developed goals and objectives
  4. Prioritization of jobs (limited program scope or differentiated rewards)
  5. Prioritization of inbound candidate flow
  6. Formally developed program communication strategy and viral messaging framework
  7. Proactive approach and priming of employees for referrals
  8. Minimized front-end bureaucracy (simple process to invoke for all parties, few policies)
  9. Leverages referrer throughout process
  10. Empowered with technology
  11. Measured from every angle
  12. Allows participation by broader group of stakeholders
  13. Delivers exceptional candidate experience to all parties involved

Legal, Diversity, And Tax-related Questions

Are there legal concerns with stating we would like employees to refer a greater number of diverse individuals?

The primary answer to this question is that you must look at your ERP as a sourcing channel just as you look at other channels. All firms that have an affirmative action program must by definition reach out to targeted groups. I can think of few organizations that do not attempt to influence diversity of candidate slates by reaching out to venues that offer skewed diversity pools. As long as you assess candidates from the ERP just as you do candidates from other channels, you are not discriminating by asking the employee population to help increase the diversity of your candidate pool.

What are the tax implications of paying a bonus or giving a gift related to non-employee referrals? Often companies like the idea of getting referrals from vendors or people outside the company but they don’t know how to handle the tax issue.

First you need to realize that some of your vendors, customers, and corporate alumni will make referrals without any promise of a reward, if you ask. Apart from that, paying rewards, be they cash or gifts, to non-employees does create a taxable situation that will increase the complexity of the transaction. However, before you dismiss the idea, ask yourself “does dealing with the complexity of paying an outside individual cost more than the value of the hire that will be produced?” In most cases, capturing a few extra fields of data from a referrer to enable tax reporting and triggering the reporting process will cost the organization less than $100 in administrative time and processing per hire. The key is to always weigh the tremendous business benefit generated by a great hire against any minor administrative pain; the benefit will win every time.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

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