6-Step Guide to Building the Perfect Employee Referral Program

July 21, 2015

A top-flight employee referral program is a recruiter’s best friend. Because, when they work well, the burden of recruiting no longer falls solely on talent acquisition.

“It allows you to turn your entire workforce into recruiters,” says Kara Yarnot, who studies referrals for a living in her role as president of Meritage Talent Solutions. “When you only have so many recruiters and so many resources to reach out to candidates, it helps to have a great referral program to empower all of your employees to help in sourcing.”

It also helps the bottom line. Studies show referred candidates, if hired, stay at their jobs longer than traditional hires and a great referral program improves a business’s overall retention rate.

Of course, all of that is contingent on building a strong employee referral program, as a weak one does little to help sourcing and a lot to hurt morale. For advice on that, we turned to Yarnot, who provided us with a six-step guide on developing the perfect employee referral program.

Step 1: Determine the goal

The first step to creating any great referral program, like the first step of anything, is having a clear vision of what it should accomplish, Yarnot said. And it’s not always just to get more referred candidates.

For example, Yarnot said she’s worked with some companies that have sought to improve their diversity via referrals, so they are looking for a select group of employees to refer more. Or, other companies want to increase referrals in specific areas of their company, such as sales, she said.

Once your team has agreed on the broad goal, it’s time to get specific. For example, maybe right now 10 percent of your engineering hires are referred candidates, and the goal is to get that up to 20 percent, Yarnot said.

Step 2: Create an exceptionally user-friendly process

Okay, so now your goal is set for your referral program. The next step is actually creating it, which should adhere to the K.I.S.S. (keep it simple, stupid) philosophy.

The less work an employee has to do to refer a candidate, the more successful the program will be, Yarnot said. The best-case scenario is that an employee just has to provide the recruiting team with a name and some way to contact the referred candidate, and the recruiting team takes over from there, she said.

Quick story: Yarnot previously worked in talent acquisition at a large construction company that wanted its employees to refer more sales candidates. So, she built a program where all an employee had to do was get the business card of a great salesperson they ran into in their personal life – such as someone who sold them a car, a watch, whatever – and pass it along to her team.

Almost immediately, she began getting dozens of referrals for high-quality salespeople. The secret, Yarnot said, was just making it as easy as possible on the employees.

Common question: Can I manage the program through my ATS?

An ATS is a good way for the talent acquisition team to track employee referrals internally, Yarnot said. But, generally, it’s too burdensome for the rest of the workforce to use, as often it requires people to upload a resume they might not have.

There are systems out there where all an employee has to do is give the name and contact information of a referred candidate, and that information is automatically populated into an ATS. Otherwise, you can just have the employee send your talent acquisition team the name and contact, and they can enter it into the ATS.

Step 3: Train your workforce

Okay, you’ve set up your referral program. Now it’s time to get people to use it.

A good practice is to train your employees on how to use their referral program, Yarnot said. And that training should cover three aspects:

  1. The practical nature of how to use the system
  2. What your company is looking for in referred candidates
  3. What employees can expect when they refer a candidate

The first aspect is obvious: people need to know how to use your employee referral system. Hopefully, you followed the advice in step 2, and it is very easy to do.

The second aspect is teaching your employees what your company is looking for. While many of your employees might already know this, it’s a good time to talk about what your leadership team values in a candidate.

The goal of this second aspect is to ensure your getting high-quality referrals from your employees. Because, if your employees are constantly giving you people you have no interest in, it’ll create both more work for you and more frustration for them.

The third aspect is one of the most critical, Yarnot said. The talent acquisition team needs to make clear what an employee can expect when they refer a candidate.

It’s a best practice for each referred candidate to be contacted within a few days, Yarnot said, even if it’s with a rejection email. If this level of communication is impossible (and hopefully it isn’t), then the talent acquisition team needs to set those expectations.

Say, in your program, a referred candidate will only hear from the company if they are deemed qualified enough to get an interview. While not a best practice, at least if employees know that ahead of time, they won’t be as discouraged if they refer a candidate and the candidate never hears back from your company.

The single worst mistake a company can make with its referral program is to not contact referred candidates when an employee expects them to, Yarnot said. If that happens, it’s unlikely that employee will refer someone else.

Common question: What’s the best way to conduct the training?

It depends on the size of the company, according to Yarnot.

A smaller company might be able to have a 30-minute in-person company meeting to explain it, whereas a larger company will probably have to do something digital. Either way, it should be relatively short, engaging and make both the process and the expectations clear.

Step 4: Continue to keep your employees engaged

One of the biggest reasons employees don’t refer more candidates is they don’t know what jobs are open within the company, Yarnot said. So, once you build your program and trained your workforce how to use it, it’s time to put on your marketing hat and keep employees abreast of the open positions out there.

Again, there are systems out there you can buy that do this for you, but it’s possible to do it manually as well. That can happen by sending out a weekly email with all open positions within your company or mentioning them during all-hands meetings, Yarnot said.

Along those lines, most employees forget a lot of people in their networks, or are blind to the career advances and changes in their networks. To combat this, encourage your team to comb through their LinkedIn connections as a refresher and see if they know anyone who’s right for your company.

Step 5: Recognize, recognize, recognize

Your program’s set up, you’re reminding your employees about open positions and the referrals are starting to come in – congratulations! Now, it’s time to share those kudos with the employees who are referring candidates.

The most common way companies do this is through money via a referral bonus, Yarnot said. However, cash bonuses aren’t necessary, and even if you do give them, other forms of recognition are nice as well.

For example, a company leader giving a shout out to the employees who referred new hires during all-hands meetings is a great way to give recognition. Another is a sincere thank you from the talent acquisition team, either through email or in-person.

No matter what you do, doing something is important, Yarnot said. An employee who refers a candidate and gets some positive recognition is likely to refer again, and it will inspire others to as well, she said

Step 6: Measure, measure, measure

Always a critical part: measuring your efforts. Yarnot said these can depend upon your goal, but some good metrics to track are:

  • The overall percent of hires who came from referrals

The most common and most obvious statistic to measure is the percentage of new hires who were referred by an employee. There’s no specific number to shoot for, just “whatever the goal is that makes sense for your company,” Yarnot said.

If this number isn’t as high as you’d like, look to make it even easier for your employees to refer a candidate or do a better job of reminding your workforce of the open positions within your company. If both of those look good, then perhaps the problem lies within one of the following metrics.

  • The percentage of referred candidates who hear from your company

The goal here is 100. But, again, it relates back to whatever expectations you set: if you said you’d only contact referred candidates who were deemed good enough for an interview, have you at least contacted all these people?

If this percentage isn’t meeting your expectations, you have to do one of two things: adjust your expectations or refocus on reaching out to referred candidates. If not, and your employees’ referrals are not having the experience your team promised, the referrals will soon stop coming, Yarnot said.

  • The percentage of “qualified” referrals

Essentially, this means the amount of referred candidates who are deemed qualified enough for an interview. This number should be (probably quite a bit) higher than the percentage of all applicants who get an interview.

If it isn’t, it means your employees are referring the wrong people. To solve this, you may need to set clear expectations and standards for what your company is looking for.

  • Your workforce’s participation rate in the referral program

All too often, a small percentage of a company’s workforce is responsible for the vast majority of its referrals, Yarnot said. If this number is low, it often means you need to do a better job of marketing your referral program and the open jobs within your company to your entire workforce.

  • The quality-of-hire of referred hires

Research suggests hires you get from referrals are of better quality than non-referred hires. That said, you have to measure it to ensure your employees are referring the right people.

Measuring quality-of-hire is always tricky, but you can use numbers like a new hire’s tenure at your company or how well they do in performance reviews, Yarnot said. Again, if this statistic is poor, it’s worth training your employees on what types of people to refer, she said.

Something to consider: Say you aren’t getting the amount of referrals you’d like, but you believe your program is easy for you employees to use and you are meeting the expectations your team set. Is it time to blow up the program?

Not quite. Other factors can have a dramatic effect on the amount of referrals you’ll receive. For example, if you just had major layoffs at your company, you’ll probably get fewer referrals. Or, if your team is really pushing to get a big project done, you’ll also get fewer referrals.

The good news is these can correct over time.

If you truly have a great program and yet you are consistently getting few referrals, it’s a sign something is wrong within your company culture. After all, people will only refer their friends to companies if it’s a good place to work.

So, at that time, perhaps more effort needs to go into making your company a great place to work, before you can start worrying about referrals.

Final thought

As all the research here shows, employee referrals are one of the best ways to source candidates, as they get you better people, quicker. Simply put, a company that doesn’t have a strong referral program is one that’s missing out on a great opportunity.

Like most things in life though, an employee referral program is only as effective as its execution. By following the six-step guide above, you’ll ensure you get the most out of your program, which will alleviate a lot of the burden of your recruiting team and improve the overall talent within your company.

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