Employee referrals patching the gaps left by online job boards

As the skills shortage continues to affect bottom lines, some employers are using employee referral programs to get the right people in the door.

There is a reason 82 per cent of employers say referrals yield the best return on investment of all sourcing methods.

According to Apollo Technical, there are several:

• Referred employees stay longer: Over 45 per cent of employees referred by colleagues stay longer than four years, while only 25 per cent of job board-sourced employees stay longer than two years.
• Referrals cost less than recruitment agencies.
• Referrals are less time costly as the conversion rate from interview to hire is greater: employee referrals increase the likelihood of a job match by 2.6 per cent to 6.6 per cent.

As summarised by employee turnover expert Dick Finnegan: “Employee referrals are four times more likely to be hired, save companies over $7,500 per hire, perform their jobs better than their peer employees … and most importantly, for our purposes, stay longer.”

While some employers are choosing referrals over job boards out of preference, others have been driven there through necessity. Skill shortages, such as those seen in retail, have forced employers to get creative.

“Once upon a time, you could advertise on SEEK or Indeed to get a bunch of talent inquiries and then go through the interview process,” said Jatin Vengurlekar, founder of Montagio Custom Tailoring.

“Nowadays, it’s very much by referral. I don’t think I’ve hired anyone through your traditional SEEK or Indeed, or even through a recruitment agent. It has all been referrals from existing staff members or from other people that I know in the retail industry,” added Mr Vengurlekar.

While the benefits of referral are clear, it is not without its risks. For instance, employee recommendations may be biased – whether to secure a referral incentive or to simply benefit a friend.

“As a result, the applicant may not be as qualified as the referrer or the referral incentive,” said Apollo Technical. Further, since referrals often rely on a personal connection, candidates might be less diverse than otherwise available through job postings.

Additionally, poorly managed referrals might contribute to negative workplace politics. If, for example, the referrer has a vested interest in the referred candidate performing well, they may be inclined to turn a blind eye or be less willing to criticise them. Similarly, if the referred candidate is a close friend of the referrer, other relations in the workplace could suffer.

Getting it right

According to Workable, there are a number of rules to keep in mind when crafting and implementing an employee referral program:

1. Explain job requirements

Most employees are not qualified recruiters. Good recruitment is difficult and requires consideration of job requirements and cultural factors.

“Dispel the mystery,” said Workable. “Include links to job descriptions when sending emails asking for referrals. It can also be a good idea to highlight what you’re not looking for.”

2. Keep employees updated

Employers should keep referring employees in the loop when it comes to their recommendations, said Workable.

“Employees who refer candidates expect to receive updates on the recruitment process. Not hearing back from recruiters can make employees reluctant to refer again, a mistake which undermines your employee referral program,” said Workable.

3. Acknowledge good referrers and offer a mix of monetary and non-monetary incentives

The most effective way to reward employees for participating in a referral program is to use a tiered payment system in which monetary compensation scales with the degree of difficulty involved in filling the relevant vacancy. This can also involve additional payments beyond the initial referral for a successful interview, a hiring, and/or a certain employment duration.

That said, compensation can, and should, involve both monetary and non-monetary forms of compensation.

“Money is a popular incentive, but selling an experience (e.g., trips, vouchers, or motorbikes) can better market your employee referral program,” Workable explained.

4. Enhance user experience in your job application process

Employee referral programs can benefit from the use of available software and platforms. This can make it easier for employees to share the job opportunity across their social media platforms and can streamline the process overall, said Workable.

5. Experiment with referral tactics

Naturally, what works will change between businesses, industries and over time. According to Workable, employers should use surveys to highlight growth opportunities in their referral programs and to address shortcomings.

“A successful referral program continues to adapt by making use of a variety of initiatives,” said Workable.

The transcript of this podcast episode was slightly edited for publishing purposes. To listen to the full conversation with Jatin Vengurlekar, click below:

Nick Wilson

Nick Wilson is a journalist with HR Leader. With a background in environmental law and communications consultancy, Nick has a passion for language and fact-driven storytelling.