Spend the Summer Rebuilding Your Referral Program and Reap a Bounty of Benefits

Jul 6, 2010

I have a suggestion for you . . . dedicate your summer to re-building your employee referral program. Now is an ideal time to invest in program design and rejuvenation, as in most cases, chaos surrounding the new year and year end is a fading memory and distant nightmare.

It’s also a great time because economic growth is just starting to ramp up, and with the growth of social networks and an unbelievable array of new recruiting tools available, opportunities abound. Why wait ’till competition for talent is once again über intense; focus now on optimizing a recruiting program with proven results and minute probability of failure. A recent poll conducted with several state-level SHRM chapters across the nation indicates that a majority of organizations are already dealing with significant double-digit growth in staffing needs, and anticipate that requisition volume will continue to grow throughout 2011. Unfortunately, those same organizations report that budgets are already stretched and that the recruiting workforce hasn’t yet recovered.

With that in mind, a key concern on every recruiting leader’s mind should be: “how do we increase recruiting capability and capacity to improve results without placing added burden on an already under-resourced function?” Luckily, it’s an easy question to answer. Retool your employee referral program and start managing it to produce the results you need.

The Many Benefits of Employee Referral (If you need further motivation!)

Having spent more than a decade advising staffing leaders and reviewing the performance of hundreds of staffing organizations, I can attest that when managed well, no other sourcing channel can come remotely close to producing the results of an employee referral program. Unfortunately, what most corporate leaders and recruiting leaders for that matter have experienced are poorly designed, loosely administered programs that despite their ad hoc nature still produce 1:4 hires on average. If you are going to invest the time in rebuilding your program, go big, go bold, and build a business case referencing the proven benefits of a world-class program listed here.

Organizational Benefits

  • Quality of hire — while accurately measuring quality of hire is a subject of much debate in many organizations, what is not, is that no matter what method used, on average, hires produced through the ERP rate the highest.
  • High-volume capability — even without formal management, the typical employee referral program produces 1:4 hires. When formally managed, several leading organizations have proven that the ERP can produce 75% or more of the organization’s external hires needed.
  • Higher candidate quality — data shows that on average 1:5 (1:3 in best practice organizations) employee referrals produce a hire. When compared to other sources, ERP candidates are of significantly higher quality than the average applicant. The reasons for this are simple: no employee in their right mind would refer someone who would make them look bad, who would negatively impact their team, or who wouldn’t fit inside the organization. The primary benefit to the organization of higher candidate quality … fewer people have to be turned away, decreasing the probability of damaging the employer brand.
  • Lower attrition rates — turnover can bread instability, and instability leads to non-optimized performance. Because hires produced through the ERP enter the organization with already established social connections, they not only become productive faster, but they turnover less frequently. ERP hires are also 3.5 times less likely to be terminated than hires produced through other sources!
  • High-impact hires — a world-class program targets the attention of the organization to quickly fill mission-critical, key, and revenue-generating roles, producing an immediately apparent impact on organizational performance.
  • Improved diversity — contrary to popular belief, a well-managed employee referral program does not negatively impact candidate slate diversity. It actually improves it.
  • Improved morale — producing a majority of external hires through the employee referral program requires a large volume of employees to be actively mining their networks and talking about the organization and what makes it a great place to work. All that talk reminds employees daily about the little things that may otherwise go unnoticed, keeping the workforce engaged and improving retention.
  • Improved network learning — another key benefit of promoting employee referral is that it gives professionals an excuse to proactively seek out and network with other professionals. While not all of those relationships will result in an application, a good number will produce professional interaction, sharing, benchmarking, and competitive intelligence.

Recruiting Function Benefits

  • Less recruiter time required — on average, sourcing consumes roughly one-third of a recruiter’s time. ERPs essentially outsource sourcing to the organization’s employees and produce a higher quality applicant stream that requires less administrative time than candidates from other sources.
  • Broader sourcing network — because your employees interact with professionals throughout the industry every day, the combined professional and social networks of your employee population dwarf the reach of your professional recruiters. In addition, the existing relationship and trust that your employees have built with individuals in their network make it easier for employees to convert their contacts into recruiting prospects.
  • Improved perception — because your employees live the job daily, what they say is likely to be viewed as more authentic than messages on your corporate website or those espoused by individual recruiters. Employee can often provide more detailed and current information about the job and the team than recruiters who service multiple org units.
  • Accelerated time-to-hire — well managed ERP processes are proactive; in other words, they seek out referrals when needed instead of relying on ad-hoc referral flow. By using alert processes and proactive priming exercises, the program can pull applicants into the staffing lifecycle when needed to decrease time-to-hire.
  • Global scope — the social and professional networks of your employees are now likely to be global, so while many other sources focus on regional populations, ERP can scour the globe for top talent.
  • Improved college recruiting — because referral programs can be successfully applied to college recruiting, where applicants are extremely well-connected, your college recruiting results could improve significantly, especially at schools that you can’t afford to physically visit.
  • Lower costs — expanding the use of ERPs or focusing them on roles with traditionally higher cost-per-hire — i.e. management and technical roles — can dramatically reduce overall recruiting costs. In addition, well-designed referral programs deemphasize large referral bonuses, often producing hires at a cost-per-hire equal to or lower than average.
  • Manager satisfaction — a no brainer; if you could review fewer applicants and make a higher quality hire, wouldn’t you be happier?
  • An increased appreciation of the recruiting function — effective ERPs make recruiting highly visible, and as a result, can make the recruiting function a continuous topic of positive conversation for a change. Well-designed programs cause employees to develop a feeling of ownership for the hiring process, and introduce employees to both the difficulties and benefits of recruiting, increasing their understanding of and respect for the function.

Final Thoughts

When you decide that the time has come to rejuvenate your recruiting function, focus your limited time and resources on programs with the highest immediate impact, lowest cost, and smallest chance of failure. You have to get it right the first time, and fortunately, all of the data indicates that employee referral stands out as an opportunity above all others. If you want to look good fast and you can’t afford a long learning curve or to suffer from a major failure, there really is no other choice.

Network With Fellow Program Managers

I’m listening! Some of you have reached out in recent weeks and indicated that you are knee deep in evaluating your program, devising proposed changes, and planning to launch a rejuvenated program this fall. To support you, in addition to repeating my program design and performance benchmark study, I’ve created a new networking group for employee referral program managers on LinkedIn. Join, share your issues, concerns, what you have learned, and collaborate with your peers on what makes a kick-ass program.

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