Everyone knows that employee referrals  produce high-quality external hires, but what most don’t know is that employee referrals can also be used to improve internal movement and placement. This boost is often sorely needed because most corporate job posting and promotion processes are poorly designed and managed.
Smart HR managers should use Internal Employee Referral Programs (IERP) to provide high-quality employee names for internal transfers , promotions, and even openings on part-time project teams. The concept for internal referrals is the same as for external referrals, which is that great people know other great people and that most employees want to help the firm by contributing to the recruiting effort. The focus just shifts from external hires to using your employee’s internal network to finding top candidates for internal movement and promotions. An IERP has many advantages and benefits.
Benefits of Using Employee Referrals for Internal Openings
The many potential benefits of an IERP include:
- Most internal placement processes need bolstering — most corporate internal movement, promotion, or job-bid systems are ineffective at best. Most were designed without harnessing technology and social media. So any supplemental element (i.e. the IERP) that helps to provide new names has to make a contribution toward improving these broken processes. If your current internal movement process is effective, the IERP can serve as a supplement to the existing process.
- More candidates for each open internal position – in most large organizations, the number of applications for a transfer or promotion opening are relatively small because these processes rely exclusively on an employee seeing and proactively applying for each individual opening. As a result of the low number of applicants, the person hired or promoted is often someone who the manager knows personally. Under the employee referral program, because each employee may know hundreds of other employees, harnessing employee networks can double or triple the number of names available for each internal opening. And as an added benefit, the names will come from a broader cross section of the employee population.
- Internal placements are cheaper — filling an opening with a current employee is as much as 40% cheaper in salary than external hiring, because the candidates in the mix are not being “bid on” by several firms. In addition, some current employees are willing to take an internal position with little or no pay increase, because they want to broaden their skills or try something new.
- Internal placements increase retention  and development — increasing the speed in which employees move internally will not only develop your employees but it will also reduce the odds of someone leaving because of a lack of opportunity.
- Increasing the odds of finding a hidden candidate in a less-visible position — one of the most important reasons for having an internal referral program is to find hidden candidates who are not in prominent or visible positions. Because employee networks are so broad, by having every employee search for potential internal placement candidates, you simply increase the odds that hidden and less-visible employees will make it onto candidate slates for internal openings.
- The right focus can increase diverse placements – if you tell your employees up front that your IERP is proactively targeting diverse employees, the use of broad employee networks may end up creating a net positive diversity impact.
- Better candidate assessment – because the individual being referred is a coworker, your employees are much more likely to thoroughly know the employee, their work, and the likelihood that they are a good fit for the position. This means that the hiring manager will have more choices and for a referred-employee candidate, they will have a second opinion on the referred employee’s qualifications and fit.
- Some employees need a push to apply for a new position — the percentage of all employees who apply for an internal opening each year is usually in single digits. One of the primary reasons for low internal movement is that inertia, a lack of knowledge of the opening, a lack of confidence, or loyalty to their current team can keep some employees from seeking new internal positions. Another employee recommending someone may be the added push required to get a reluctant individual employee to allow their name to be considered for an opening.
- Referrals increase the number of employees who are aware of job openings – under almost all internal placement systems, the employee must be aware of an opening before anything can happen. Unfortunately, many employees simply don’t have the time or the energy to continually monitor these openings. An internal referral program means that many of your employees may accept the role of internal recruiter, and as a result, you dramatically multiply the number of individuals who are aware of each opening. In some cases, merely having a larger number of employees aware of the openings will result in them urging more employees to apply, even if it is through the traditional movement process.
- An effective program can increase placements across business units – even if a high-potential employee is in a visible job, they may work in a business unit that has no interaction with the rest of the firm. In conglomerates and global firms, employee movement between distant regions and independent business units can be almost nonexistent because of this lack of interaction. If the referral program places an emphasis on “across-business-unit placements,” employees will focus their referrals on these more difficult placements. Increasing the sharing of employees between business units can also help to break down barriers and to increase best-practice sharing.
- Most companies do not have an internally focused team of recruiters – the most powerful internal movement mechanism is having trained recruiters search your firm’s employee base. However, only a handful of firms (such as Cisco, Microsoft, and Booz Allen) have internal recruiting teams. So, if you can’t afford “real recruiters,” the next best option is to have your employees serve as your internal recruiting team.
Action Steps for Developing an Internal Employee Referral Program
Obviously the first step to sit down with those individuals who are in charge of the internal movement processes to help them understand how referrals can improve their results and eventually to get their buy in. Five key program decisions to be made include:
- Should the program be autonomous? – the first key decision is whether the internal referral program should operate separately from the external referral program (I recommend that they run together and share marketing and position postings). Obviously if the IERP is to operate under the umbrella of the existing external employee referral program, that referral program manager needs to be involved early on).
- Should there be a reward? – the next decision is where there be a referral bonus for each successful internal placement (Although recognition should always be part of the package, it may be enough of a motivator. As a result, provide something inexpensive like a $50 coffee card, the same amount in movie ticket,s or if you can afford it, a free iPad mini).
- Who should be eligible to make a referral? — the third decision is whether any employees be excluded from making referrals in the program (only the hiring manager for the job should be excluded. And if there is any potential conflict, the individual should opt out of the reward or donate it to charity).
- Avoiding friendship referrals – a decision must be made on how best to discourage employees from only referring their friends as a favor. Emphasize to employees that the program expects only high-quality referrals and not “friends referring friends” (As a result, require each employee to describe their relationship with the referral, as well as including a testament to the quality of the referee’s work and the level of their skills).
- Handling duplicates — a final decision is what to do when two employees refer the same individual for a position (accept only the first referral received and each referral should be tied to a specific opening, so that the referral automatically expires after that opening is filled. A second option is to split the reward).
Referral programs have worked well in most every situation where they have been used. They have a long history of success with customer referrals and for external hires (Incidentally, they also work extremely well for college and intern hiring). The logical next step is to apply them to internal openings. The benefits are significant and the risks are low, so give it a try.