Employee Referral Programs
Even though there are many reports about unemployment at record setting levels…hiring is still taking place. Jobs are still available. And, one of the most cost-effective ways to recruit is via an employee referral program. (Please note: I said ‘one of’ and not ‘the only’ because organizations should source candidates from a variety of methods.)
If you have an employee referral program in place or are considering adding one, let me toss out a couple thoughts to contemplate.
Referral bonus amounts need to be fair and significant. If your referral bonus is $25, reality check…no one does anything for $25 anymore. For your employees to tell their friends that your company is great and they should come work there, the bonus has to be meaningful. How much is meaningful? Calculate your cost per hire and use that as your guide. How do you calculate cost per hire? Here’s the formula (compliments of the SHRM Metrics Toolkit):
Cost Per Hire = (Advertising + Agency Fees + Employee Referrals + Travel Cost of Applicants and Staff + Relocation Costs + Recruiter Pay and Benefits) / Number of Hires
Let’s toss out a hypothetical example. You’ve determined it costs $5000 to hire a sales manager in your company. It might be possible to offer a referral bonus in the thousands and still net ahead (depending on other costs.) Plus you get the added benefit of increased employee engagement in the recruiting process.
I also would challenge organizations to eliminate the so-called ‘waiting period’ for paying referral bonuses. The employee’s role in a referral program is to provide the company with the candidate. The responsibility for selection and retention doesn’t belong to the employee. It belongs to the manager. So why is the employee being penalized by having to wait for their referral bonus? The responsibility of selecting the right candidate, setting the new employee up for success, training them, providing recognition, etc. belongs to the manager. If the new employee leaves in 60 or 90 days…then the issue wasn’t the referral. And, the company needs to look somewhere else for answers.
Referral bonuses have the potential to be a very effective recruiting tool for organizations. But the key to their success is in appropriate pricing, timely payment and placing responsibility for the program where it belongs.
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