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Employee Referral Saves Time, Saves Money Delivers Quality - Statistical Data Included
Workforce, June, 2001 by Carroll Lachnit
Thoughtfully implemented employee referral plans are excellent ways to attract the best people at the lowest cost. Employees like to help their friends, and they don't expect lavish rewards.
When employee-referral programs make the news, it's usually because the companies involved have paid a big bounty for a hire. Earlier this year, SRA International, a Fairfax, Virginia, systems integrator, awarded an employee a $50,000 grand prize in its annual employee-referral lottery. And in 2000, Blackstone Technology Group, a San Francisco-based IT company, picked up the tab for a referring employee's BMW, the prize in a company raffle.
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For any HR person who has concluded that it takes big bucks to create a successful referral program, here's the real news: the programs' value lies in their economy and ability to not only attract good job candidates but also show goodwill and commitment to the employee making the referral.
Why Institute a Referral Program?
The programs are valuable for four reasons, according to "Employee Referral Programs: Optimizing Your Most Effective Recruiting Tool," a June 2000 white paper by Angami Systems, a referral-technology company that has been acquired by Hire.com.
* Low cost per hire. Referral programs cost $500 for exempt employees and $70 for non-exempt, versus $2,884 and S726 for print advertising, and even more for agencies and executive recruiting firms, according to the 2000 Employment Management Association's cost-per-hire survey.
* High-quality hires. Employees are unlikely to recommend people who they think are unqualified or unreliable.
* Decreased time in hiring. Employees are selling the company to the people they refer. Interviewers, including people in FIR, can spend their time evaluating a candidate's background and qualifications. Employees also tend to recommend people who they know are ready to make a job change, which also speeds the hiring process.
* An opportunity to strengthen the bond with existing employees. Referral programs acknowledge and reinforce the company's commitment to rewarding the individual for helping the company.
Additionally, an Ohio State University study shows that employees hired through referrals have a retention rate that's 25 percent higher than that of employees hired through other methods.
What Motivates Employee Referrals?
A recent survey of employees in a dozen industries by Referral Networks, a New York City-based company that markets a Web-based application to help companies create and manage employee-referral programs, gives some insight into what it costs to get employees interested in making referrals.
The news is good: five-figure bounties are not what drives the process.
Forty-two percent of the 2,300 employees surveyed by Referral Networks said they referred because they want to help a friend find a good job. Twenty-four percent said they wanted to help the company. Another 24 percent said they were motivated by a reward, according to the survey.
More good news: employees don't even expect a lot of money for making referrals. In the Referral Networks survey, 85 percent of the respondents said they'd be motivated by a reward of $1,000 or less. Thirty-two percent of those said they'd be happy with a sum between $100 and $400. Interestingly, 24 percent of the companies in the survey were apparently overpaying, offering $1,500 or more as a reward.
Meanwhile, two-thirds of the respondents told Referral Networks that they'd be happy to receive such non-cash awards as airline tickets to U.S. destinations, weekend getaways, two extra vacation days, or a piece of electronic equipment.
Computer hardware giant Intel Corp. uses a combination of monetary and non-monetary incentives, says Erin Gorsline, program manager, Intel e-Staffing. In addition to a cash reward for referrals, the company also offers a raffle for those employees who've made referrals. Last year, the prize was a choice between a $1,000 travel voucher or a home entertainment system.
"We like to give folks choices," Gorsline says, "and we've definitely seen increases in the number of quality resumes submitted since we've begun the process." Gorsline said 50 percent of the company's new hires have come from referrals.
John Sullivan, head of the Human Management Program at San Francisco State University and an expert in referral programs, agrees that "mix and match" programs like this are effective because the enthusiasm for a program dies down after a year or so. Giving away something big every six months goes a long way toward revitalizing interest, he says.
Unifi Network, a division of Pricewater-houseCoopers, uses non-monetary incentives in its referral program. But "money gets people's attention faster," says Tom Casey, a partner in charge of the talent management practice.
From its research, Referral Networks concludes that the programs are not "a game of dollars," says Catherine Drogin, the company's vice president of marketing. "You don't have to offer more than $1,000. We don't recommend taking it away if you're offering more than that, but if you're thinking that a higher reward is better, it's not. We recommend that you take the money and put it into promoting your program. Spend it on driving awareness, so that the employees don't have the excuse of 'Oh, I didn't know we had a program."' Typically, Drogin says, only about 5 percent of a company's employees participate in the referral program. With best practices, she says, the number can be raised to 25 or 30 percent.
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