What’s the best type of employee referral program for my company?

Hiring is every team’s #1 business challenge.

Whether you’re a founder at a startup or a global talent acquisition leader, you’re charged with the most challenging task in business: Building a great team. So how do you start the search for a new hire? Odds are, you ask your trusted network.

But referrals don’t happen naturally, in fact, you can expect only 3 to 7% of your hires to come through referrals if you don’t have a strategic plan for referrals at your company.

4 programs to build scalable referrals

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In order to elevate referrals to a recruiting strategy, you need to develop a scalable process. While every business has their own variation, there are 4 types of referral programs you can use to develop a more predictable referral flow. Below, you’ll find the most traditional to most cutting-edge referral programs. Decide which program works best based on your team culture, hiring needs, and comfort level with implementing new approaches to recruiting.

[NEW! See the Infographic: Building the Best Employee Referral Program for Your Team]

Traditional employee referral program (No Reward)

Traditional employee referrals are an easy way for a business to get started generating scalable referrals. Your
recruiting team should establish a process for referring candidates to your hiring team (or hiring managers) and educate your entire team on the benefits of referring their network.

The pros: This is the easiest program to roll out if you’re just getting started. Founding teams, hiring teams, or hiring managers can take small steps to set up the program and get big initial results. Referrals help employees to feel like they are directly contributing to the culture and team at your organization and increases employee advocacy.

The cons: Traditional, non-reward employee referral programs often “fade into the background” after launch, with no reason to remind employees and no tangible incentive for referring. You may soon find yourself “hunting people down” to get referrals, which can be an uncomfortable task that doesn’t seem worth it when stacked against easier candidate sources.

Consider these 7 ways to fill your referral pipeline to keep your traditional employee referral program top of mind.

Reward-Based Traditional employee referral program

A reward-based employee referral program is also a common corporate referral program; 63% of companies offer some reward for referrals, according to a 2014 WorldatWork study. The reward-based program involves all of the elements of a standard program with one added benefit: compensating the referrer for sourcing the candidate. If you decide to implement a reward-based approach, you’ll have to decide how to distribute your rewards:

  1. These rewards can be cash rewards, non-cash rewards, or a combination of both.
  2. There can also have a “one-size-fits-all” reward structure, or the reward can be a “scaling reward” commensurate with the difficulty of hiring that role (a recommendation by Dr. John Sullivan.) Of companies that dole out a referral bonus for employees, the most common reward amount is between $1,000 and $2,500.
  3. Lastly, you can choose a one-sided reward (reward the employee) or a double-sided reward (reward the employee and the candidate). Although these are less commonly implemented, academic research by Pittsburgh University & Korea University shows that double-sided rewards are the most effective form of referral reward.

Referral Rewards Types

 

The pros: A reward-based program includes all the benefits of a standard referral program, with the added benefit of incentivizing your employees to refer. These programs motivate employees to refer by keeping referrals top-of-mind as a way to earn rewards or extra income. Teams that use these programs increase the number of candidates referred overall, and reduce cost per hire.

The cons: Rewards programs often come with additional tax implications to your business and employees. Consult with your finance department to determine the steps you will need to take to reward employees with cash or prizes. While rewards may become a larger line item in your budget, the quality of hire, employee satisfaction, and your new hire productivity will also increase.

Want to get your new rewards program off the ground? Use these 25 ideas to promote your referral rewards program.

Referrals 2.0: Tapping into your hiring community

Community Referral Program (No Reward)

In community referral programs, companies tap into external resources like former employees, friends and spouses of employees, investors, and social media followers to refer candidates. If this sounds crazy, keep in mind that 41% of referrals come from outside your company already; you just may not be tracking them or might be crediting them as an employee referral.

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Pros: By expanding your search beyond your network, your business is able to tap into thousands of potential connections to source candidates.

Cons: The biggest concern about external referral programs is candidate quality. Businesses fear these referrals will be as high-quality or a “perfect fit” for the business. While these programs may be able to reach a broader audience, with less “skin in the game” and no incentive for referring, response rates will be much lower.

Consider following these tips from Segment VP of HR, Adriana Roche, on how Segment runs their community referral program (without cash incentives).

Reward-based community referral program

A reward-based community referral program is arguably the most effective way to create a scalable referral engine for your business. It combines all the best-performing elements of the standard employee and community programs with an eye-catching and motivating cash (or reward) incentive.

Like the reward-based community referral program, you will also need to choose which types of rewards to offer (cash or non-cash), how to structure rewards (one-size or scaling), and whether to reward the referrer or both parties (one-sided reward or double-sided).

Pros: This program’s true value comes from its network effect. Each member of your team is connected to hundreds or thousands of contacts who can potentially refer top talent. By incentivizing industry leaders, talented subject matter experts, and friends of your employees with a reward for a referral, you are able to reach a broad network of talent that spans far beyond your team. You can leverage these connections to get introduced to candidates you would not have otherwise met, and even get responses from passive candidates who otherwise may not respond.

If you want to build a predictable referral engine, extending your network to your community and rewarding them for their service is the single most effective way to scale.

Cons: The big hurdles for rolling out a reward-based community referral program are getting executive (and cultural) buy-in and coordinating payments. You should also monitor the quality of referrals you receive from your community to establish the relative value of a community referral against other major sources, including employee referrals.

What’s next?

Now that you’re armed with the power to decide which referral program is best for your company, you can get started building the case for your program. We’ve created a helpful Powerpoint deck and email templates to help you make your case for a referral program to executives and hiring managers at your company.

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2 thoughts on “What’s the best type of employee referral program for my company?

  1. Pingback: [Infographic] Building the best referral program for your team

  2. Pingback: Community referrals: Why you need more than just “employee referrals” - Drafted Blog

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