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Improving Referral Program Performance by Avoiding “They Found Me” Referrals

by Oct 1, 2012, 5:56 am ET

Nearly every firm that I have worked with that captures data on the quality of their hires learns that employee referrals produce both the highest volume and the highest quality of hire from any source.

However, the results of referral programs can almost always be dramatically improved when referral program managers become fully aware that a significant percentage of the referrals that are received under most programs would have to be designated as “low-quality.”  Low-quality referrals can be broken into three groups:

  1. Bottom performer referrals — Those referrals submitted by your low-performing employees (who might not know or be able to influence top performers to become referrals).
  2. Referrals motivated by money – employees who are primarily motivated by money may submit a high volume of low-quality referrals.
  3. “They found me” referrals — People who your employees barely know who became referrals because they approached and asked your employee to make them a referral. I call them “they found me” referrals because your employee did not seek them out.

This last group, the “they found me” referrals, is the most significant type of referral to reduce because, according to my research, it can exceed 36% of all referrals. Imagine how much more powerful the results from the overall referral program would be if all three of these types of low-quality referrals could be eliminated, so that they didn’t clutter your referral system.

The Best Referrals Are the “I Find You” Type of Colleague Referral

There are two basic types of referrals: the “I find you” and the “they found me.” The type of referral that produces the highest quality referral is the “I find you” type. This superior type is when one of your employees goes out of their way over a period of time to identify a top-performing colleague. This “I find you” approach assures that all of referrals will be well known by your employees and that their work and their skills will be completely assessed before a referral is ever made. As an added benefit, these “I find you” colleagues are almost always currently employed individuals who are not actively seeking a job (they qualify as the so-called passive candidate). Because they are not active in the job market, their name will normally not be found in your current candidate database.

Try to Minimize “They Found Me” Stranger Referrals

Now let’s shift to the other contrasting type of referrals, the “they found me” referral. They can comprise over one third of all referrals, and these types of referrals are tainted because the individual that the employee is referring is “a stranger” to them. The referral may not be known at all by your employee (6%), they may be barely known (11%), or they may be only a casual acquaintance (19%). Taken together, that means that on average 36% of all referrals result from an employee being approached by a near stranger and being asked to make them a referral. Because they actively approached your employee, these “they found me” referrals must be classified as active candidates who are so eager for a job that they have probably already formally applied for a position (so they are already in your candidate database).

Why “They Found Me” Stranger Referrals Are Less Desirable

When a relative stranger approaches one of your employees, whether in person or online and asks to be made a referral, the candidate must initially be considered less desirable because:

  • Skills/work quality — you don’t know that the referred individual has superior skills because your employee has not assessed their level of skills or the quality of their work.
  • Fit assessment – you don’t know that they “fit” the organization because the employee has not taken the time to assess this individual’s fit for the job, the manager, or the organization.
  • Interest assessment – you don’t know their level of interest and commitment to your specific firm. Without knowing the individual’s direct interest in your firm, you must assume that they are job-shopping and your firm is only one among many where the individual approached an employee. In addition, because the employee has not built a relationship with the individual, you can assume that the employee has not had the opportunity to completely sell the prospect on your firm.
  • No investment – because the employee has not invested much of their time in identifying and assessing this stranger, you must at least initially assume that the employee will not be willing to mentor and provide valuable assistance to this individual after they become a new hire.

8 Action Steps for Minimizing Low-quality Referrals

If you expect to reduce the number of referrals from strangers, from bottom-performing employees and referrals that are motivated primarily by money, here are eight action steps to take:

  1. Define undesirable referrals – state upfront that you expect employees to seek out and find their own referral prospects. Make it clear that you do not want “they found me” referrals and in most cases, referrals of relatives also.
  2. Relationship/time known — require the employee to state as part of their referral submission their relationship with this individual and the length of time that they have known the prospect.
  3. Skill/work assessment — require the employee to assess their referral’s skills and work and to declare that they are equal to or superior to your standard.
  4. Fit assessment — require the employee to assess their referrals “fit” to the organization, manager, and the job.
  5. Interest – require the employee to assess their referral’s interest and commitment to your firm. Also require them to “sell” the prospect on your firm, so that the candidate will be enthusiastic if they are called in for an interview.
  6. Prioritize employees — use the job title, the performance appraisal rating, and their past referral hiring percentage record to weight or rank the individuals making each referral. Referrals from highly ranked employees should be looked at first. When possible, provide direct feedback periodically to those making both great and weak referrals.
  7. Encourage referrals “for the good of the team” – if you are having employees making referrals mostly for the money, reemphasize that the primary purpose for making referrals should be primarily to improve the team. Educate your employees so that they realize that top-quality referrals mean that you and your teammates will be able to work alongside only top performers and that it’s inappropriate to refer individuals who don’t meet your team’s high standards.
  8. Proactive referrals – the highest quality of all referrals comes from proactively approaching your high-performing employees and asking them to provide the names of the very best who they know, admire, and learn from. As a result, you should encourage your recruiters to seek out proactive referrals from your top employees and managers in the teams or job families who you are targeting.

Final Thoughts

I have been espousing the value of employee referrals long before they became popular. And although it is certainly true that referral programs are powerful, realize that even successful referral programs can get much better (reaching more than 50% of all hires). You can improve referral program performance by periodically re-energizing your marketing, being highly responsive to referrals, and reducing the number of “they found me” referrals from un-assessed strangers. A complete list of the top 70 best practices in employee referrals can be found here  and here.

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.

  • http://www.InsideTMT.com Ed Newman

    Dr. John –
    This is a great article. While I have always believed that referrals are the best source – I have often disagreed with the practice of big bonuses and referral fees – if they do it for the money, you lose the quality. Back when I was in HR, we had an employee who used to pull resumes from the internet and fax them in as referrals – just looking to cash in like a contingency recruiter.

    Like with most other things, if you want it done right, you need to educate your employees on how you want them to do it. This article is a great blueprint for going beyond the marketing and awards, and implement a meaningful program.

    Well done!

  • Keith Halperin

    Thanks, Dr. Sullivan. You have a link to what you have listed as ER “best practices?” Who determined that these are in fact “best practices,” and how were they determined?
    As I’ve previously mentioned, I’d like to see an Employee Referral Con, where best practices are discussed, analyzed, and critiqued.

    @Ed: Why do many people suggest that employees should give ERs for free or for only modest amounts of compensation? I find it insulting that a company is willing to pay four or five figures for an agency hire, but unwilling to pay more than a tiny amount for an ER.

    As far as motivations, who cares why someone does something that’s beneficial? As a rather similar story to yours, I once worked for a company whose employees were so motivated to get hireable referrals that they placed want ads at their own expense to get people to refer. That’s the kind of employee buy-in you want your ER program to have. If you think that employees should be motivated by altruism as opposed to money, perhaps suggest that sales reps be minimally or not at all compensated for revenue-generating leads, or sr. execs should no longer receive substantial performance-based bonuses.

    IMHO, it should be within each employee’s (from Director on down) job duties to refer at least one person/year who is hired, and to be generously financially rewarded for such.
    Perhaps I am alone in this, but a large bonus check says a lot more that a company values what I do than any amount of pious hype from HR or Corp Comm does…

    Cheers,

    Keith “Will Help Organize ERCon” Halperin

  • Ty Chartwell

    Doctor Howard, Doctor Fine, Doctor Howard.

    Same old stuff Doc.

  • Merlynn Bertini

    I would disagree with most of this article. Do employees
    refer candidates for a bonus–yes, but that is an incentive
    for employees to refer candidates. Like any other program
    ER programs need to be defined and communicated to employees
    so that they understand the how the program works, program goals,
    etc.

    Personally, I have found ERs to produce very high quality
    candidates and very effective. Communication of the ER
    program is key.

    Merlynn

  • http://drjohnsullivan.com Dr John Sullivan

    What makes them best practice

    There is no best practices approval group. Most of those were ERE award winners

    John

  • http://www.linkedin.com/company/expedia Jeremy Langhans

    My favorite part was:

    Referrals from highly ranked employees should be looked at first.

  • http://community.ere.net/blogs/the-careerxroads-annex/ Gerry Crispin

    This is one of those times John, when you need to supply data not anecdotal statements like that folks ‘you’ve worked with’ have come to these conclusions. ‘Show me the data’ and I’ll buy your premise. Until then I consider it an unproven hypothesis.

    This is one time a peer reviewed journal article would answer the question. My hypothesis is that a large portion of candidate initiated referrals have critical value. And certainly better than no referral at all.

    The question in this increasingly social world isn’t whether “I found you” or “you found me” but the quality of our connection. Regardless who found who I would submit that if the employee had viewed a sample of the the person’s work in some previous situation, the quality of the referral would be much higher. We need to understand the strength of the connection in relationship between referrer and referral with respect to both the referrer’s demonstrated work practices AND their observation or connection to the referrals work history.

    Just sayin