Employee Referral Programs: Why They Matter and How to Optimize Them – Steven Duque

Employee Referral Programs

One of the most effective recruiting strategies, in terms of time invested and future employee retention, is also one of the cheapest ways to hire. Employee referrals bypass high agency fees for successful introductions, while increasing employee investment and strengthening company culture. Even so, many companies underutilised the power of employee referral. Here, in numbers, is why you should prioritize your employee referral program and how you can optimize it. Employee Referral Programs.

According to a Jobvite study, only 7% of applicants come from referrals, but these applicants make up 40% of total hires. The nature of an employee referral has prescreening built in, saving your hiring managers valuable time by discarding the lowest quality candidates before even making the connection.

Further, employees referring their friends have a longer standing relationship with and better understanding of the candidates they recommend than recruiters typically have. It is thus no surprise that 88% of employers rated the quality of new hires from employee referrals above all other sources of talent, according to CareerBuilder’s 2010 ‘Referral Madness’ whitepaper.

Because there are fewer weak candidates to sift through before narrowing down those who may be a good fit for the open position, positions can be filled more quickly. In a 2011 Social Recruiting Survey by Jobvite, 67% of respondents said the recruiting process for referrals was shorter than typical.

The same research shows that new employees hired through referral start working at their new jobs 55% faster than those who applied through career sites — 29 days, on average, instead of 55 days. Getting new employees on the clock sooner means that they can start adding value sooner.

This is compounded by faster onboarding of hires through referral. “The new employee is already connected,” says Liz Ryan, CEO of Human Workplace, “it’s not like they’re walking into a strange place. They may have met some of the employees before. The energy is great around the new hire.” Referred candidates have the benefit of knowing at least one of their new coworkers already on day one and, through that connection, have a built-in mentor. “‘[The referred hire] feels like they have a friend who’s not their boss to turn to and ask questions as they onboard, so it helps to get them integrated into the culture much more quickly.’” says Kara Yarnot, Founder of Meritage Talent Solutions.

Beyond comfort asking questions about their work, referred candidates can get a sense of the corporate culture before beginning work and can more easily ascertain fit. According to Jobvite’s 2011 Social Recruiting Survey, 70% of employers felt that referred hires fit the company culture and values better than hires without referral.

The more positive onboarding experience and the better cultural fit of referred hires converts into improved employee retention. Research by Jobvite shows that 46% of employees hired through referrals stay for 3 or more years, compared to 39% of employees hired from career sites and only 14% of employees hired from job boards.

Even better, this employee retention benefit is two-fold. “A successful referral makes an employee feel better about the company they work for” says Yarnot. “What I’ve found is not only do they tend stay longer after the referral, but they are more engaged as well.” Increased employee engagement is indubitably great for corporate culture and replacing employees is expensive, so this reduced employee turnover is great for your bottom line.

According to Jobvite’s 2011 Social Recruiting Survey, sales positions have the highest employee referral hiring, but other positions take advantage of referrals, as well. “Employee referral is the best recruiting channel I know” says Ryan. “It is certainly not the only one, but it’s the only one that reinforces and celebrates your employees in a tangible way for contributing to your company’s success. It’s the only one that builds on the community you’ve already established in your organization.”

With so many major advantages, not including an employee referral program in your company’s recruiting strategy is a costly mistake. But how do you incentivize your employees to refer their contacts for open positions? After all, if they refer their best friend for a position and the best friend has a negative experience either during the interview process or on the job, your employee can suffer social consequences or guilt.

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