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Grow Your Business Your Team

How to Create a Great Employee Referral Program

referrals Credit: bleakstar/Shutterstock

Great job candidates can come from a wide variety of sources. They might apply through your company website or a job board, they might be headhunted by a recruiting company or they might be connected to one of your current employees.

Because their staff members may have a strong professional network, many companies have implemented referral programs, in which existing employees can recommend a person they know for an open position and receive a reward if that person gets hired. Business News Daily spoke with business leaders and human resources experts about why referrals make great hires, and how to create a program that works for your organization.

According to research by Jobvite, employee referrals generate 40 percent of all hires and are hired 55 percent faster than candidates who come through other avenues. Here's why referrals make excellent choices for filling open positions.

Employers tend to find that referred candidates are higher-quality and are better fits for the position. That's because the employees who recommend them have been through the hiring process and know exactly what the company wants — and they're willing to stake their reputation on someone they believe is a match.

"The referring employee most likely will prequalify the candidate because the referrer does not want to tarnish his or her reputation within the company with an unsuccessful hire," said Laura Kerekes, chief knowledge officer of HR solutions company ThinkHR. "The candidates also generally have a more realistic view of the job and company because of the additional insights they receive from the referring employee."

"Your team already knows the culture, the idiosyncrasies of your management and the best and worst parts of the job," added Stephanie Bruha, operations manager at Kavaliro staffing company. "If they are referring someone, they have already determined if that person would be a good fit."

If some of your best employees are passing along the resumes of people they know, you may want to prioritize those particular candidates. People tend to recommend people similar to themselves, so if you have a top performer making a recommendation, odds are he or she will be recommending other top performers, said Jan Jones, author of "The CEO's Secret Weapon" (Palgrave Macmillan, 2015). 

"The people being referred perform well because they don't want to let down the person who referred them," Jones said.

Passive candidates who aren't looking for a new job could be a better fit for your position than active applicants, and may even be open to exploring the opportunity. But unless you take the time to research and recruit them, you'll likely miss out on your chance to convince them. With an employee referral program, your staff can tackle this difficult, expensive and time-consuming part of the recruiting process for you. 

"[With referrals], the company obtains access to talent that may not be actively looking but are willing to look at your company because of the encouragement of someone they know and respect," Kerekes told Business News Daily.

Deva Santiago, vice president of recruiting at website building platform Weebly, said that referrals are extremely important to the company's hiring process for this reason.

"A significant number of our employees joined through referrals," Santiago said. "We embrace the power of word of mouth; it can lead to undiscovered talent outside of traditional pools of candidates."

The Jobvite Index revealed that candidates hired through an employee referral consistently stay at jobs longer than those hired through career sites or job boards. Alan Henshaw, technical recruiting manager at Opower, a customer engagement platform for utilities companies, found that this trend has held true at his own company.

"At Opower, we put a fair number of resources into our employee referral program, due to the solid year-over-year results that we see," he said. "Referrals are the top source of hires, with 1 in 3 coming from employee networks. [They are] two times more likely to stay at Opower for over two years than agency or passive candidates."

The dynamic in your workplace vastly improves when your staff members get along with each other. By bringing in a referred candidate, you're ensuring that this person already has a built-in work buddy, which will likely help the potential employee get acquainted with and fit into the existing social groups and culture faster.

"People like working with their friends [and] are keen to bring in others ... who would be a good fit for the culture," Jones said. "In some industries, groups of people know each other from various projects they've worked on in the past, and they also socialize outside of work, so it creates a relaxed and fun work environment."

"Hiring referred candidates strengthens the bond between the referrer and the company and boosts employee relations, making company employees brand advocates," Kerekes added.

If you're thinking about implementing an employee referral program at your company, the first thing you need to do is consider the program structure. Claire Bissot, a senior professional in Human Resources (SPHR) and managing director of CBIZ HR Services, advised thinking about the following factors:

  • Employment status and performance: To benefit from the program, referrers should be actively employed with the company at the time of referral and meet company performance standards.
  • New-hire tenure: If hired, the referred employee must have served for a minimum length of time for his or her referrer to qualify for payout (Bissot recommended at least six months to a year).
  • Payout amount: Determine if the bonus or incentive earned by the referrer is consistent for any open position, or varies based on how difficult the position is to fill. Bissot noted that increasing the payout could encourage employees to actively search for candidates, and it would still likely cost you less than a recruiting or staffing agency fee. However, be aware that it could backfire if your employees think they can refer anyone just for the chance at a big bonus: Henshaw said increasing the payout amount for a senior role at Opower only led to an increase in nonqualified candidates.
  • Communication: Discuss the referral program — and all new job openings — with your staff and new hires regularly. If your employees are aware of the bonus they can earn, they will always keep an eye out for interested candidates in their network. Bissot noted that publicizing your open positions could also help you spot internal candidates you may have missed.

Once you've outlined the parameters for your referral program, follow these tips to make it successful.

Be transparent about incentives. Don't make your referral benefits a secret. All employees should know exactly what they can expect, and when, if their candidate is hired. Jones noted that incentives don't only have to be monetary, either — time off or paid trips are also appreciated by employees. To figure out what works best, you should talk to employees and ask what benefits would motivate them to refer quality candidates, Jones said.

Make it easy. No one likes a confusing and complicated job application, and candidates who come recommended by another employee may expect the process to be even easier for them. Make it as simple as possible for employees to make referrals (or for referred candidates to apply).

"[This includes] online applications that streamline the process for candidates to learn more about the job and company and indicate that they were referred by an insider, great marketing materials in a variety of media to help the employee 'sell' the company, etc.," Kerekes said.

Prioritize communication with referred candidates. While referred candidates should not be automatically hired or chosen over a better-qualified outside applicant, they should at least receive the courtesy of timely, thoughtful communications. Kerekes recommended treating these candidates like VIPs throughout the hiring process by responding and following up quickly.

"Even if the job is not the right fit for that candidate, your referring employee will most likely continue his relationship with the candidate outside of work," she said. "Leave it on good terms so that it is not uncomfortable for either party."

Henshaw agreed, noting that Opower prioritizes referral resume reviews and provides personal feedback within three business days.

Keep your team in the loop. Your current employees will be encouraged to keep sending qualified candidates if they feel their efforts are appreciated. If a referral wasn't hired, you should explain to the referring employee why their recommendation was rejected.

"Be more specific on the job description so they know in future how to recommend someone who is a better fit," Jones said.

"Let them know when you've talked to their referral, and let them know if they had an interview, or if it didn't work out," Bruha added. "No one wants to feel like they were sent into the HR black hole, even when it is just a referral they sent over."

Nicole Fallon

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the managing editor. Reach her by email, or follow her on Twitter.