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Employee Referrals May Be Even More Effective Than We Think

by
John Zappe
Jan 31, 2012, 3:31 pm ET

Employee referral programs may produce more hires — perhaps many more — than surveys would suggest.

Over the years it has come to be accepted that the average number of new hires coming from employee referral programs is somewhere between SHRM’s 24 percent (for non-exempt positions) to about a third. Some programs do much better.

From CareerXroads now comes evidence that the hires from employee referrals are undercounted.

“Referrals permeate the recruiting process more than we think,” says recruiting consultant Gerry Crispin, a CareerXroads principal.

He and his partner, Mark Mehler, surveyed their clients and others about employee referral programs and found that most of the 50 respondents have a referral program, most pay a bonus of some kind, and on average 28 percent of their external hires are referrals.

Most of the results, says Crispin, were expected. However, in comparing data from that admittedly limited, and unscientific survey with the early results of the consultancy’s annual Source of Hire study, “we’re finding referrals are a part of every source or almost every.”

For instance, rehires, a small, but steady source of hires, include a sizable percentage of individuals referred by employees. The rehires may first come to the attention of recruiters through a referral, but when they’re onboarded, the source of hire tends to get reported as a rehire.

It’s a “classification issue,” explains Crispin. A similar situation occurs with sourcers. They will be reported as the source of a hire even when they identified a candidate as a result of a referral from an employee.

Crispin and Mehler included an early indication of the pervasiveness of employee referrals in their survey results, posted online here at SlideShare. The numbers are still being crunched for the forthcoming source of hire survey (tentatively to be titled “Channels of Influence”), so there’s no data cited for the contribution referrals make to these other sources.

However, the share of the pie that referrals make to the total hires attributed to these other sources is labeled. As Crispin observed, “With just what we can count, referral programs make a big contribution.”

Much of the other data in the survey report will be useful to recruiters for comparing their own results. The surveyed companies, the report preface notes, are “large, highly-competitive firms.” Some make upwards of 10,000 hires a year. More, though, make 1,000 or less.

Big or small, two-thirds of the respondents offer a bonus for every referral hire. Most common (44 percent) is $500 for a non-exempt hire. One-in-five will pay $1,000 and a few more (28 percent) will pay that for difficult to fill non-exempt positions.

It takes about 10.4 referrals on average to make a hire. Some companies are either so picky or get so many referrals that only one referral in 25 or more results in a hire.

One other significant stat coming out of the survey is that the majority of employers don’t give the referred candidate any special treatment. Of the 39 percent that do, the comments cited in the results suggest that many don’t do much more than review the resume or application.

On the other hand, 85 percent of the employees who made a referral will get a thank you whether or not a hire is made.

One of the survey’s only surprises, Crispin said, it that employers that don’t dedicate staff to managing and promoting the referral program actually do better than those with staff assigned.

The 53.6 percent of companies that divvy up the work among the recruiting staff average about 33 percent of hires from referrals. Those with some dedicated support average about 24 percent.

“It’s counterintuitive,” Crispin agreed. The result could be just an aberration. Or, he speculated, it could be spreading the work means there’s more overall time invested in the program. Or, it could be the “silo effect” effect, that is when one person is tasked with a job, everyone else leaves things up to them.

“Now that I’ve seen that,” Crispin notes, “I’d be curious to see if someone could replicate it … for now, it’s just an artifact.”

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.

  1. Keith Halperin

    Thanks, John. This is good news. I look forward to working with other like-minded individuals to creating ERCon- a recruiting convention devoted to discussing and improving a proven, cost-effective means of making a very large number of hires (as shown above) and grossly overlooked….

    Cheers,

    Keith
    keithsrj@sbcglobal.net

  2. Bryan Wilson

    Very good info and something we probably all think in the back of our minds. Its probably why so many people are jazzed about “social recruiting” and the like because really its just a fancy way of empowering employee referrals and tracking it without the manual effort of having someone assigned to manage that particular program in a company. Great info, thanks for the post.

    @bryanmwilson

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  4. Joshua Hensley

    Excellent article. Just imagine if a young recruiter decided to devote more of his or her time to just the EE referral program @ their company…

  5. Paul Basile

    This report is good and important. It also, in my view, signals a problem. Let’s think: why are referrals such a growing and relied-upon source? Maybe because we aren’t doing a good job of identifying high performers. In the best of worlds, with all your employees and alumni and contacts being world-class networkers (and that isn’t true anywhere, is it?), the candidates found through referrals are going to be a tiny fraction of the possible high performers in the world. Why trust such a miniscule sample? Because a referrer’s candidate seems more reliable (is s/he?) than someone unknown to us. To me, that suggests strongly that we are not using assessments properly, to know in depth which unknown candidate will be best. And if I am not using valid assessments, if I don’t have that scientific evidence available to me, I probably would prefer to trust referrers. (A parallel: if I don’t know anything about consumer electronics I will ask my neighbor or friend who bought something recently; but I CAN know a lot about consumer electronics because the expert and unbiased and relevant information is available. As it is for candidates.)

    I think the emphasis on referrals is probably just as pronounced as is reported and I think it is not a positive sign. Let’s do a much, much better job of using science to know who is predicted to be a high performer, independent of whether they have a friend in the building.

  6. Joe Goss

    Back in the days of print ads, I used to joke that I ran an ad to increase my employee referrals and contacts from agencies.

  7. Gerry Crispin

    Some of the best work on referrals, Keith, was done by Master Burnett (if you think getting people together would be good, I would start with him).

    He is the one who suggested to me that splitting up responsibilities among several team members might exceed (in time devoted to referrals) more than a single dedicated headcount.
    Also see the conversation between Master and myself on Referrals archived under last year’s San Diego Expo

  8. Todd Raphael

    Gerry — here’s that link to the conversation with you and Master – http://www.ereexpo.com/2011spring/conference/agenda/conference-sessions/#video-261

  9. Keith Halperin

    Thanks, Gerry and Todd. I’ll check it out and try to reach Master, who I had the pleasure of briefly meeting last year. (At least it was my pleasure, not sure about his….)

    Cheers,
    Keith

  10. Ken Schmitt

    Great article and thanks so much for sharing the preliminary numbers with us. Kudos to CareerXroads for conducting this very consistent and highly useful survey every year. We have been using these stats to support our career coaching clients for several years and it really highlights the importance of networking and securing referrals. Just shy of 60% of the placements we made in our search practice in 2011 were the result of referrals – not to mention the numerous informational interviews that occurred as a result of introductions and personal referrals. It’s all about collaboration and networking in today’s market – or any market for that matter. We actually wrote an article about the art of Collaboration which was very well received and we are happy to share it with your followers – http://www.turningpointsearch.net/resources/articles/page/3/

    Ken Schmitt, Founder/President
    TurningPoint Executive Search
    http://www.turningpointsearch.net

  11. Jason Gegere

    Hello John, based on this article it sounds like you have a good idea on what is needed to pass quality referrals. Have you ever thought about rewarding people for referrals which end in a sale? I am a co-founder of a startup call Passing Green. If you have a few minutes please visit http://passinggreen.com/ to learn more.

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