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Employee Referral Programs: How to Set One Up and Examples
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Looking for a way to improve your employee recruitment process, identify and hire top talent and engage your current employees? An employee referral program just might be the answer. Used by some of the most profitable organizations in the world, including Google, Facebook, and others, these programs have proven to be one of the most successful recruitment strategies. 

What does it take to establish an employee referral program? Will it really work? Here’s what you should know.

What Is an Employee Referral Program?

An employee referral program is a set of procedures a company uses to recruit new talent by encouraging current employees to recommend qualified candidates. Often, the employer incentivizes employees to refer potential recruits by offering a reward for any formal recommendation that leads to a hire.

Employers use these programs because they are cost-effective and faster than alternative recruitment strategies, lead to more qualified hires and contribute to better employee engagement overall. (See some statistics below that confirm the benefits of employee referral programs.)

Requirements

While there is no particular set of rules for establishing and maintaining an employee referral program, in general, they include the following components:

• A policy outlining which employees and recruits qualify

• An established procedure for referring candidates

• A reward for referrals that lead to hires

• A system of measuring efficacy

How to Set Up an Employee Referral Program

How do you successfully secure an employee referral? Here are the general guidelines and steps you should follow to build or improve your program.

1. Hone your goals and hiring needs.

First, you should explore the goals of the program. Which types of positions are you looking to fill? Have you been having trouble filling particular roles, and if so, why? In general, employee referral programs work best for positions that need to be filled quickly or require a certain level or area of specialized expertise. 

That doesn’t mean you need to limit the program to senior-level or specialized positions. Perhaps you’re looking to improve employee engagement overall. If that’s your goal, an employee referral program can be a great way to demonstrate your appreciation for your workers. Or maybe you want to recruit more diverse candidates. Whatever your objective, make sure it’s specific.

2. Establish a policy.

Set clear ground rules up front, and make sure your employees are aware of them. Explain why the policy exists, how it works, the reward, and any other pertinent information. It’s best to keep it clear and straightforward.

Make sure you define any caveats, too. For example, if the policy doesn’t cover referrals for entry-level candidates, state that in the policy.

3. Identify a reward.

You might solicit feedback from your employees about what they want. (Hint: it’s not necessarily money.) Look at the examples below to come up with ideas for potential rewards for referrals that lead to hires.

4. Keep the process simple.

You don’t want your employees to be in any way confused about what they need to do to earn the reward. Make your employee-referral process as user-friendly as possible by establishing clear steps.

You might, for example, create a form for referring a candidate, including boxes for explanations of how long the employee has known the candidate, in what capacity she knows her, why she is recommending her, and so on. 

5. Market the program.

Once you’ve established the program, promote it. Make employees aware of it through emails, signage, and other efforts. You might even have a party to celebrate the program’s launch.

6. Measure the success of the program.

You need to know how effective your program is, and in order to do so, you’ll want to gather data. Some examples of metrics to evaluate are:

• How many employee referrals lead to hires

• The proportion of total hires that come from referrals

• The success rate of referrals who are hired (consider performance reviews, retention rate, and so on)

• The rate of participation in the employee referral program

7. Continue to evaluate and tweak the program.

Using your data, make adjustments as needed. It’s a good idea to ask employees how satisfied they are with the program and use their feedback and suggestions to improve it. Schedule regular reviews of the program to maintain its efficacy. 

5 Examples of Employee Referral Programs

1. Google

When Google doubled its employee referral bonus from $2,000 to $4,000, the tech giant expected an upsurge in referrals. However, it ultimately found that the size of the reward mattered far less than the process. Google began asking specific questions to improve the quality of recruits and actually had recruiters sit with employees as they searched for potential candidates. These strategies, rather than the award amount, proved more effective in engaging current employees and recruiting qualified hires.

2. Hewlett Packard Enterprise

HP recognizes employees who refer candidates through events and celebrations. The company finds that acknowledgment is one of the most effective tools for promoting engagement.

3. PURE

This property insurance company finds 40-60 percent of its employees through referrals. PURE owes its high employee referral rate to soliciting recommendations early, within a few weeks of hiring someone new. 

4. Salesforce

Salesforce offers large monetary incentives as part of its employee referral program, but that’s not all. It also holds Recruitment Happy Hours, where employees invite their friends and acquaintances to mingle with recruiters and identify new opportunities and talent respectively.

5. InMobi

This marketing platform has a particularly innovative referral system, tapping into what employees really want and need. It established rewards aligned with the preferences of employees from different countries and cultures. So, in the United States, employees can choose between receiving a new Vespa or a trip as a reward.

Tips for Building a Great Referral Program

How can you improve your employee referral program? Here’s what to keep in mind.

• The size of the bonus doesn’t matter as much as you think.

As demonstrated in the Google example, the amount of the reward matters less than the process. Focus on creating a strategy that shows employees how much you appreciate them, rather than just increasing the size of the reward.

• Money is not the only factor. 

On a similar note, remember that non-monetary rewards can provide as much, if not more, incentive as money can. Consider InMobi’s bikes, for instance.

• Simplify.

The process should be easy and quick for your employees. Including a million intricate steps will discourage them from referring. 

• Recognition counts.

Don’t forget to show your referring employees your appreciation for their dedication. Even if the referral doesn’t lead to a hire, a quick thank you can go a long way in contributing to a positive company culture

Do employee referral programs really work?

Wonder if employee referral programs really work? Consider these statistics:

• 82 percent of employees rated employee referrals as the systems that generate the best ROI (CareerBuilder)

• Companies can save $3,000+ per hire by using employee referrals. (Recruiter)

• It is 55 percent faster to hire a referral than to find candidates using career or job search sites. (HR technologist)

• Employee referrals generate approximately 25 percent more profit than hires from other resources. (Staffing.org)

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