How to Make Your Employee Referral Program a Powerful Recruitment Tool

An employee referral program is necessary for organizations looking to increase the number of high-quality applications in a tight labor market. 

From job boards to networking events to social media, endless channels exist for finding new talent. But if you want to make great hires, it’s the quality rather than the quantity of applicants that matters. Regarding ROI, few recruitment techniques perform as well as employee referrals.

Employee referrals result in faster hires, come at a low cost, and make the screening process easier for hiring managers. Here, we’ll dive deeper into the importance of referrals and explain how to turn your employee referral program into a powerful recruitment tool.

Why Employee Referrals Matter

Employee referrals are good for business in more ways than one.

According to a 2023 benchmark report from talent acquisition software firm Radancy, hiring takes an average of 50 days when relying on traditional recruitment techniques like job boards. On the other hand, referred candidates take just 35 days on average to hire.

Referred candidates also stay at their jobs longer. In a LinkedIn study, 46% of referred hires stayed for at least a year after being hired, compared to 33% of people hired through career sites and 22% hired through job boards.

Referred candidates have better job acceptance rates, saying ‘yes’ to the offer between 2% and 6% more frequently than their non-referred counterparts.

Finally, your existing standout team members are a gold mine for reaching other top talents. It’s a well-documented phenomenon that high performers refer other high performers—they have high standards, so it makes sense that they’d only consider the cream of the crop among their professional circle when referring candidates to their company.

Given the many benefits of referrals, we’d argue that every employer should have an employee referral program.

What is an Employee Referral Program?

An employee referral program is a strategy in which companies encourage existing employees to submit candidates for consideration for open positions. A structured referral program formalizes the process employees use to submit those referrals and adds one or more incentives that reward them for their submissions.

Formalizing the referral process provides clear direction for employees who might otherwise not bother handing in a referral. It also saves time by having an established system for accepting and reviewing referrals (i.e., having only one referral channel versus taking them by email, in writing, via a submission form, etc.).

Incentivizing the referral process ensures there’s something in it for employees who invest the time and effort into mining their personal and professional networks for eligible candidates. Incentivizing also benefits the employer. Establishing that candidates are rewarded solely for referrals resulting in a hire will discourage the submission of frivolous referrals and encourage those who are actually a logical fit.

Having an official program helps keep referrals top-of-mind for busy workers. By regularly communicating the company’s job openings (more on this below), you’ll encourage a steady stream of candidate suggestions and help make referrals become a habit for your employees.

Benefits of Employee Referral Programs

Expand your talent pool

Many employers fall into the habit of posting their openings on the same job boards and relying on the same sources they always do when seeking new candidates. An employee referral program can help you expand your talent pool, reaching applicants your job listing might not have come in front of otherwise. This is crucial to being able to hire in a tight labor market. 

Reach passive candidates

If someone isn’t actively searching job listings, they won’t hear about your opening… that is unless a friend lets them know about it. Employee referrals help you reach passive candidates who are difficult to identify. Passive candidates are often strong, loyal workers with successful track records, but they’re notoriously challenging to recruit. 

Build employee engagement

When you ask your employees for suggestions on who to hire, you show them that their input is valued. When they, in turn, make a referral, they’re investing in the company’s success. This creates a positive cycle of employee engagement, which helps improve the retention of your existing workforce.

Make stronger hires

When you receive a referral, the candidate is already partially vetted. You’re starting out ahead of the game, which helps you hire faster and more accurately. An employee referral program is an excellent resource for strengthening the quality of your hires overall.

Challenges of Employee Referral Programs

Despite their many upsides, employee referral programs have their share of challenges. You’ll want to consider these factors as you plan and implement your referral program.

Leadership buy-in

A referral program can only be successful if there’s buy-in at the top. The responsibility for promoting the program can’t fall solely on HR; leaders on all teams must be involved in actively encouraging referrals—not just for roles on their team but across the company.

Complexity

The best referral programs are easy to understand and easy to participate in. Don’t make employees jump through hoops to submit a referral. For smaller companies, an email-based referral program may be sufficient. The larger the organization, though, the more you may need technology infrastructure to support it. Consider using referral software or a cloud-based application if you’re a large or enterprise company.

Diversity detriments

A study by PayScale looked at the ways—both positive and negative—that referrals shape companies. One of the downsides they found was that referral programs don’t benefit women and minorities as much as they do white men. It is possible to run an employee referral program and still achieve a diverse workplace by prioritizing programs that promote diversity, attending career fairs in diverse areas, and making inroads at schools with diverse student bodies.

Creating an Employee Referral Program That Actually Works

Now that we’ve established why a referral program is beneficial let’s discuss how to turn yours into a powerful recruitment engine. It comes down to setting up a referral program that leadership understands, employees actually want to use, and that’s as easy as possible for all involved.

Use the following employee referral program ideas to plan and execute a successful program in your organization.

1. Choose a channel and make it the standard for submitting referrals.

First, decide the appropriate scope of your program. Do you only want referrals on an occasional basis, or do you want a robust, perpetually running referral program? This scope will help determine the best channel to use for taking referrals.

You might accept referrals using an online form, a paper form, email, or even text messages. Simple is best, so we advise picking one channel or two at most to avoid confusion and streamline the submission process.

Then, clear and straightforward instructions should be created for how employees should use the submission channel, what the incentives are, and how and when incentives will be awarded. Distribute the instructions company-wide and make them available wherever you house other key personnel documents.

2. Strategize the right incentives.

Cold, hard cash is still a great motivator for referrals, but it’s not the only one. Take some time to gather feedback from managers about what motivates employees. Time off and company-sponsored perks, like concert tickets and free meals, can be good options.

One downside of cash incentives is that they can take a long time to materialize, such as waiting 90 days before paying out for a referred new hire. Consider implementing some low-cost, immediate incentives (a $10 Starbucks gift card, for example) that give employees a more instant reward for their successful referral and help maintain interest in the program. You might also hold a raffle monthly or quarterly for all employees who submitted referrals, regardless of whether they resulted in a hire.

Finally, consider a sliding scale of incentives based on the role. It’s logical for executive-level or highly specialized roles to come with a higher referral bonus than entry-level ones.

3. Assign ownership and set KPIs.

Don’t just set it and forget it. Your employee referral program needs a designated owner who will steer the ship and clearly define goals to measure progress.

Here are some metrics to consider when establishing referral program KPIs:

• Referrals submitted per month
• Referrals submitted per employee
• Referrals submitted per job opening
• Interviews per month
• Interviews per referral
• Interviews per job opening
• Hires per referral
• Referrals versus all other recruitment channels

4. Spread the word.

Though one person or department should oversee your employee referral program, spreading the word about it falls on all members of leadership.

First, managers and department heads should be educated about how to use the program. Then, work to integrate it into your everyday operations. Department heads might schedule five minutes at the top of team meetings to discuss the referral program. HR might send an email blast every Friday with current openings. Give the referral program its own section in your new hire onboarding process. Promote it from the start, and do it frequently.

This leads to our next tip: get specific about the roles you want to fill. Simply making a blanket ask for referrals won’t get you very far. Instead, share specific details about the role and the type of candidate you’re seeking to help your employees make appropriate connections.

5. Measure progress and share successes.

On a regular basis, check in on the KPIs you set in step three; monthly or bi-monthly is a good frequency. Analyze what’s working and what could use improvements, then tweak the program as needed.

Keep employees engaged by sharing success stories and spotlighting your top referrers. Sometimes, recognition can be the biggest motivator to get employees involved. Also, close the loop on referral results so employees aren’t left wondering what happened with the candidates they recommended.

In a report by CareerBuilder, 88% of employers with a referral program rated it higher than all other recruitment channels for the quality of new hires. By implementing or updating your own referral program using the tips above, you’ll enjoy the benefits of lower turnover rates, lower hiring costs, and higher-quality candidates that will ultimately improve your company’s performance.

How to Manage an Employee Referral Program

Set goals

Clearly defined goals will help keep your referral program running smoothly and aid in streamlining the referral process. Decide what it is you’re hoping to accomplish, be it accessing more technically skilled candidates, reaching passive job seekers, lowering recruiting costs, boosting retention, or some other objective. This will inform the KPIs we touched on and help you make data-backed decisions supporting your broader goals. 

Decide on a payout structure

Most employee referral programs distribute rewards in one of two ways: via a one-time payment after a certain milestone, like 90 days, is reached after the hire or on a staggered basis over a longer period of time. The one-time payment structure is more common, but better options may exist. A staggered payout–for example, in monthly payments over a six-month period may be the better choice. Not only does it facilitate a longer “reward” period of positive reinforcement for the referring employee, but it can also encourage more long-term support for the new hire. Weigh the options to decide which payout structure is best for your organization.

Delineate your culture

One of the reasons employees make such good referrers is that they’re already enmeshed with your company culture and, thus, can tell who would be a good fit within it. Still, putting that culture into words can be a big help to employees looking for great candidates in their network. Identifying and communicating your company culture and other aspects of your employer value proposition helps employees easily identify strong-fitting candidates for a steady stream of quality referrals. 

Make job descriptions accessible

We’ve talked in other posts about the importance of writing strong job descriptions to attract top talent, but it’s no different when talking about referrals. Employees need a way to easily access the descriptions of the positions they’re hiring for to submit good referrals. In your employee communications, provide a separate link to the job description for each opening. Aside from making it easy for team members to review each position, this also facilitates simple sharing with people in their network. 

Offer supporting materials

By now, it’s clear that a referral program must be easy to participate in to be successful. One way to make it even simpler to get involved is to offer ready-made supporting materials employees can view and pass on to prospective candidates. Assets like recruiting videos and pre-written social media posts promote sharing and save time, which boosts referral program participation.

Keep employees informed

You’re probably already aware of how important it is to maintain a consistent line of communication with candidates during the hiring process. Don’t neglect the other party in the referral equation: the referring employee. Cash rewards aside, one of the intrinsic benefits of participating in a referral program is the knowledge that the employee has made a successful contribution to the organization. So, keep employees informed about the status of their referrals as they move through the various phases of consideration.  

What Makes a Good Referral? 

Relevant experience

One major advantage of referrals is that employees often have direct insight into a candidate’s background, that’s hard to glean from a resume alone. A great referral will have strong experience with duties and expectations closely related to those of the job opening. 

Required skills

Of course, a referral still has to check all the necessary boxes regarding the required skills for the job. A good referral will be able to speak directly to those skills and vouch that the candidate has what it takes to perform in the role. 

Credible source

A referral is only as good as its source. If the referral comes from a high-performing employee, there’s a very good chance it’s another high-performing individual. Your mileage may vary if it’s from a mid or low-performing team member. 

Length/nature of relationship

While a lengthy relationship isn’t a hard and fast requirement for a strong referral, it’s always a plus if an employee can say they’ve known this person to be a skilled and diligent worker for five or ten years. Consider also the nature of the relationship. It makes a difference whether the referral is someone with whom an employee has direct work experience, or they’re just a casual professional acquaintance. 

About 4 Corner Resources

We help companies like yours harness the power of direct recruitment to find and hire top talent. For those hard-to-fill roles, our headhunters tap into our deep network of professional relationships to identify candidates with the perfect set of skills—including those elusive passive candidates.

With percentage-based fees, flat fees for volume hiring, and retained search agreements, we have a program that aligns with your needs and budget. We also offer temporary staffing and contract-to-hire services.

Contact us today and let our friendly recruiting team show you how 4 Corner Resources differs from your run-of-the-mill staffing firm. We look forward to meeting you.