What is an employee referral program?
Nowadays, more and more organizations are building an employee referral program as an additional tool to their recruiting strategy. Rather than leveraging the traditional ways of hiring, e.g. job board, agency, paid ads, etc, employers look to their current employees to refer qualified candidates for jobs through incentives or rewards. Many organizations also realize that, in today’s digital environment, setting up a digital employee referral program that can systematically track and manage the whole referral process contributes to the success of the program.
An employee referral program, simply put, is an increasingly popular form of recruiting that allows employers to tap into their employees' social networks, leading to an increased talent pool.
Many organizations find that reward-based employee referral programs pay off in the long run because employee-referred candidates are reported four times more likely to be hired, get hired faster, of higher-quality candidates, and stay at the jobs longer.
From the employees’ perspective, a referral bonus motivates and keeps them engaged in the referral process. And with the implementation of a digital employee referral program, they get to share the job posts with their networks and track and monitor the progress of their referrals in the recruiting workflow more easily.
Employee referral program guidelines
1. Show your appreciation and recognition
A successful employee referral program makes the employees feel heard and valued because they know that they are making contributions to the growth of the organization in a tangible way. Show your appreciation by acknowledging and highlighting top participating employees in your organization’s bulletin board, intranet, or monthly meetings because these employees take the time to make referrals and should receive some sort of recognition for their effort. This will tick the box for those motivated by social factors and bring a more humanistic approach that your employees will likely remember and be proud of.
2. Use the right tool
There are many benefits of digitizing your employee referral program, enhanced data collection, stronger resource management, and a better user experience, to name a few. The best referral software, such as ReferralHero automates all aspects of running a program without overcomplicating it. Having a more streamlined process in a central location for tracking referrals so that there is less of a chance for lost, misplaced or forgotten information will help you evaluate the success of the program and see where improvements can be made.
3. Keep participating employees informed
As there are usually a number of stages in the recruiting process, e.g. initial qualification, first interview, second interview, contract proposal, contract signed, etc, make sure that the progress details are transparent and easily accessible because participating employees are invested enough to make a referral, it’s natural that they’ll want to stay current in the process.
4. Reward both engagement and results
While filling job vacancies is the ultimate goal, many organizations understand that engagement improves drastically when there are meaningful rewards in place that motivate employees to take the initiative to participate. Those that have taken the time to craft an incentive system that rewards engagement, not just the end result, particularly when the jobs are harder to fill or the recruiting cycle is longer, are more likely to see stronger outcomes.
5. Promote your referral program
A steady flow of new referrals is necessary for your employee referral program to be worth its while. Before your employees can start ‘marketing’ your organization and ‘selling’ your job openings, you’ve got to market and sell your program to employees. Educate your hiring managers, join forces with your marketing department to get creative with how you may market the program, and use all the channels on hand to communicate your program with your employees before, during, and after its launch.
How to build an effective employee referral program?
Below is a step-by-step guide for building an effective employee referral program.
Planning is essential for any systematic attempt to achieve desired results. An employee referral program planning begins with a robust understanding of your organization, workplace culture, and employees. There are a number of aspects involved in the planning stage:
a. Establish program objectives towards which progress can be measured and evaluated.
This requires you to understand and explicitly define your hiring needs and resources by:
- Setting specific and measurable goals, e.g. “fill 10 openings in 3 months”, or “reduce the yearly turnover rate by 20%”. Avoid setting goals that are too vague and can not be easily quantified, e.g. “increase the total number of referrals”
- Clarifying the resources you need to attain the identified goals: time, staff, and budget. In other words, for each identified goal, you need to allocate enough manpower, time, and money so that the program can realistically operate within your organization’s limitations.
b. Determine the evaluation procedure to be followed.
Program evaluation is a critical aspect of an employee referral program. It aims to ensure the program is aligned with the identified goals, enable your organization to learn and improve the referral process if needed, and identify cost-effectiveness in the referral activities. All in all, evaluation procedures should include the implementation plan for the evaluation activities and the creation and dissemination of internal reporting with metrics that quantify the effectiveness of the program both on and beyond the hire volume. Example metrics are employee participation rate, time to hire for referrals vs applicants from job boards, improvement rate on cost per hire, referrals to hire ratio, employee satisfaction with the referral program, etc.
c. Choose the best implementation method.
The integration of digital technology into all areas of businesses has fundamentally transformed how businesses operate and deliver values today. With the world sheltering at home post-pandemic, an overwhelming amount of activities has shifted online. Employee referral programs that have gone digital provide organizations the ability to create seamless, smart, instant, effortless, and user-friendly experiences across all interactions with their program participants. Look for referral software such as ReferralHero with sufficient expertise.
An employee referral program design is about converting the requirements gathered through informed planning into a collection of action plans:
a. Establish the process, rules, and guidelines.
The key here is to create an easy and transparent referral process. Your employee referral program should be simple and straightforward with referral rules easy to understand and apply. Your goal is to equip your employees with as much information as they need to make a referral to eliminate confusion. For example, who can make a referral and be eligible for any incentive? How will the sharing of job posts be done? What information about the organization and position will be shared with their referral? What software or interface is used to submit and track referrals? What are the incentives they can expect? Is there a limit to how many referrals an employee can make? Does the referred hire need to complete a probation period in order for the referring employee to receive their referral bonus?
b. Devise the rewards.
Many organizations have expanded their rewards to include non-monetary incentives or a combination of both such as paid time off (PTO), gift cards, company outings, charity donations, etc. Others use a tiered monetary incentive system to reward participating employees who help fill positions that are harder to find candidates for or a fixed amount of reward for each recruiting stage the referral progresses through. The best way to design your incentive system is to ask your employees what they would like to have as a reward for a successful referral to the organization. As a reference, according to a LinkedIn survey, 96% of their employees prefer a cash bonus for a successful referral.
c. Avoid discrimination and biases.
Work with your legal teams and make sure your referral program is in compliance with all laws and regulations around hiring. Reevaluate your program on a regular basis and make necessary adjustments to ensure continued compliance.
You need to market your employee referral program just like any other campaign to make sure it’s going to have good uptake. It’s crucial to ensure that your team understands the referral process and how it benefits them. There are many ways you can promote your employee referral program, e.g. you can introduce it during a whole-team meeting, post the program on your company’s bulletin board or send internal emails to get the word out, etc. Here are a few additional tips:
- Build hype before it’s launched.
Pre-launch marketing raises awareness and builds anticipation/buzz. It also allows you time to conduct some valuable market research before the program goes live. Partner with your marketing department to create branded promotional materials.
- Get your employees excited about participating.
Holding an inter-departmental competition to see which department garners the most referrals in a fixed period, say a quarter, can help build excitement, encourage teamwork and establish a referral culture.
- Create a referral kit.
Prepare a referral kit filled with resources that give insight into working with your organization and the position for your employees to share with their friends. You want to make it as easy as possible for your employees to refer candidates to you.
Internal marketing of your employee referral program should be a focused, detailed and long-term process. It’s not a set-and-forget strategy. Regularly revisit your program and if referrals start to drop off, create top-of-mind awareness by introducing limited-time incentives such as paid vacations, free memberships, one-year house cleaning services, etc. to help pick the program back up. You might also want to always accept referrals even when there is no current vacancy so as not to discourage any referral efforts.
Employee referral program best practices
1. Experiment with referral tactics
There is an ocean of creativity and innovation when it comes to running your employee referral program. A successful employee referral program continues to adapt by trying different referral initiatives. Analyze and identify the weakest aspects and make the necessary changes to efficiently evolve your program.
2. Create a close-knit workplace
A well-managed employee referral program takes away some of the recruiting stress because finding candidates becomes easier and the quality of the candidates also rises. Furthermore, the successful placement of a referred candidate can be a substantial motivation for the participating employee. When the referral culture is built into the workplace, overall morale is boosted when teams work well together.
3. Centralize or decentralize your program
Program management issues may arise when you have offices spanning the globe. Some organizations with an international presence find that a decentralized employee referral structure is inefficient and lacks consistent strategic direction from their headquarters. It’s beneficial to strike a balance between these two concepts by appointing a lead person but also including regional personnel who can better understand the local HR practices.
Best samples of employee referral programs
Let’s finish by taking a look at a few examples of successful employee referral programs which you can use the inspiration for your own program.
1. Digital Ocean
- Digital Ocean revised its employee referral program to highlight the company’s community commitment.
- They used an incentive-based referral program and one strategy was the Personal Referral/Credit Grants plan. When an employee’s referral was hired, the Credit Grants would be paid out to the employee.
- In addition, Digital Ocean paid a $1,500 charitable donation on the referring employee’s behalf for each referral hired.
- Digital Ocean would also match any additional contribution made by the employee. And with any additional donation of $500 or more, the employee would receive one entry to the annual raffle.
- The result was a stunning 43% participation rate.
- Thousands of jobs have been successfully referred to Hilton through their employee referral program since the program's inception.
- Hilton has made sharing to popular social platforms, e.g. Facebook, LinkedIn or Twitter, exceptionally easy with the adoption of mobile recruiting. Referrers can simply copy and paste their unique referral link and receive referral credit when they share it.
- Digitized referral structure at the same time makes tracking referrals extremely efficient. A referral that enters the site via a unique referral link will be tracked and counted accurately, while an email notification is sent to the referrer to inform them of the referral activity.
- Points are awarded for each social share activity. Referrers with the highest accumulated points will be spotlighted as “Top Referrers”.
- Lyft's driver referral program is completely integrated into its app. Lyft decided to run a double-sided program by providing referral rewards and a sign-on bonus to new drivers.
- Current drivers can either share their unique referral link or referral code with a referral.
- After a referral is successfully qualified as a new driver, the signup bonus and referral reward are issued.
- Besides enabling current drivers to check the referral status, e.g. bonus requirements, through the app, a confirmation email is also sent which contains referral information in greater detail.
As you can see building a successful employee referral program has many facets, but we hope you have made it this far and have enjoyed this article. If you want to build an employee referral program that will supercharge your recruiting efforts, check out ReferralHero and let us handle many of these aspects for you.