How to grow your team better, faster with an employee referral program

January 10, 2022 - 17 min read

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What is an employee referral program?

6 reasons you need an employee referral program

What should an employee referral program include?

4 steps to create a successful employee referral program

4 companies with stellar employee referral programs

You might’ve heard the phrase, “great people know other great people.” 

When it comes to hiring great candidates, we know it can feel like a war for talent. The hiring process can be daunting.

According to the US Labor Department, as of November 2021, there are 10.6 million job openings. Compare that with the reported 6.3 million unemployed people in the US. Looking purely at the numbers, there is a war for talent. 

But in an economy where employers are vying for the best talent, one tool can be extremely beneficial: employee referrals. 

Your own great employees are well-positioned to know what type of people can contribute and thrive in your company.

If your organization is looking for the best ways to source high-quality talent, employee referral programs are the way to go. Let’s dig into what an employee referral program is, why it’s important, and how to create one at your company. 

What is an employee referral program? 

Oftentimes, employee referral programs come with incentive-based rewards. This means the employee who refers a great candidate gets rewarded. The benefit for the company? They gain great talent.

It’s also a great way for employees to feel heard and valued. When an employee refers a great candidate who gets hired, the employee feels a sense of ownership. They are making contributions to how the business is growing in a very tangible way.

But there are some nuances to what makes a successful employee referral program. Let’s first examine if your organization needs one. We’ll also talk about what it takes to make a good employee referral program work well for your company.

6 reasons you need an employee referral program

First, let’s look at the data. Do employee referral programs really work?

There’s a lot of information out there on the success (or lack thereof) of employee referral programs. It’s a more complicated answer than a simple yes or no. But when done right, employee referral programs do have a significant positive impact on your business

Research shows that referred employees perform better than non-referral candidates. Research also shows that referrals are higher-quality candidates. They’re more likely to not only accept the offer but are more likely to stay at your company longer. 

Here are five reasons why you should consider implementing an employee referral program.

Help hire faster

According to LinkedIn data, the average recruiting lifecycle takes 55 days. If you’re a hiring manager, that’s a long time to sit with an open job position.

But with employee referrals, data shows the recruiting lifecycle reduces to 29 days. That’s a significant chunk of time saved — and productivity gained.

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Save on recruiting costs

Think about all the costs associated with hiring for a single position. The recruitment process is expensive. And finding qualified candidates can cost time — and money.

You may be spending money on advertisements or social media. You may pay for real estate on job boards or job postings. You may enlist the help of a recruiting firm or agency. You may outsource the position to another third-party firm.

But with employee referrals, your overall costs are reduced. According to the same LinkedIn data, employee referrals are less expensive. Even if your organization implements a generous incentive program, it’s likely you’ll still save money.

Higher-quality candidates

According to LinkedIn, the number one way people discover a new job is through a referral. LinkedIn also reports that companies can expand their talent pool by 10x if they tap into their employees’ networks.

In the end, this results in higher-quality candidates. LinkedIn notes that high-performers are more likely to refer to other high-performers. This gives some truth to the phrase “A-players know other A-players.” There’s actually science behind it.

This should come with one caveat: the referrer needs to know the candidate well. The strength of connection plays a role in the quality of the candidate. Research shows that employee referrals are of higher quality when the connection is strong.

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Increased employee retention 

Every organization wants employees to remain employed as long as possible. Employee retention plays a key role in overall business performance.

So what does employee retention look like when it comes to referred candidates? In short, referred candidates stay longer. Employee referral programs can improve your organization's retention rates.

The above-mentioned LinkedIn data shows that 33% of career site hires stay at their organization for at least one year. But if that candidate was referred by an employee, 46% of referred hires stay for at least one year. 

Diversity 

Meaningfully diversifying your workforce is an important priority for many organizations. Employee referral programs haven’t always been beneficial in increasing a diverse representation. But over the last ten years, it's gotten better.

According to Glassdoor, referral pools have become more diverse over the last decade. Glassdoor’s data reveals that since 2019, 45.7% of US referral interviewees were Black, Indigenous, or people of color (BIPOC). It also reflects that 49.8% were women. That’s a 12% increase since 2010.

But many would say this still isn’t enough. Consider employee referral programs as a component of your diversity recruiting strategy. But it shouldn’t be relied on as its sole source for diverse talent. An effective diversity recruiting strategy is multi-faceted. It needs to be intentional.

It’s also worth looking at your employee demographics. If your organization isn’t meeting your diversity goals, why would your employee referral program meet them?

Employee referral programs have the potential to be a value-add to your diversity recruiting strategy. But it depends on your organization’s overall approach to diversity, equity, and inclusion. Consider working with your HR leaders to see how to best factor in diversity when implementing an employee referral program.

Culture and morale

An employee referral program can also bring positive benefits to your organization’s company culture and morale.

First, the referer can experience a boost in morale. When their employer trusts and values their opinion of a candidate, that employee is going to feel a sense of value and belonging. Those components are key to fostering a sense of belonging in your company’s culture.

It’s also important to look at referrals and evaluate their culture add to your organization. To truly foster a diverse, welcoming culture, your leaders will need to look at talent from a different perspective.

What attributes, qualities, and culture add does the candidate bring? How can this referred candidate enhance the company culture? In what ways can you use the employee referral program to build brand awareness?

What should an employee referral program include?

Now, you’re ready to start thinking about how to build an employee referral program. It’s important to understand the key components before you start building. Consider these factors:

  • Eligibility, rules, and guidelines. It’s important to work with your HR team to ensure the program doesn’t violate nondiscrimination laws. Consider eligibility and other policy guidelines you’d like to consider.

    Can every employee participate? For example, some companies allow full-time employees to participate (but not part-time). Other companies require referred candidates to stay with the company for a period of time for the referrer to be rewarded.

    Do ample research and work with HR leaders to put guardrails around the program design.
  • An accessible resource page for all information. Your organization’s intranet is a great place to house information on your employee referral program. Make sure you put all the program details in one place that’s easily accessible.
  • An incentive program. Most (if not all) employee referral programs have some sort of incentive. After all, employees are bringing your organization great talent.

    Consider what type of referral bonus you’d like to reward employees with (think: cash bonuses, gift cards, employee recognition, and more).

4 steps to create a successful employee referral program

1. Make the referral process easy for employees to participate

If the referral process is too complicated, you’re not going to reach desired results. Make it easy for employees to refer qualified candidates.

If there are barriers to participation, the program won’t be successful. Again, work with your human resources team and talent acquisition teams to ensure it’s easy for employees to take part. HR professionals will have a pulse on what it takes to create a successful program.

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 2. Promote the program (often) 

Employees won’t know the program exists unless you tell them about it. Clear, open communication is key to launching the program.

Find ways to talk about the program in onboarding or new hire orientation. Maybe you can promote the program at your organization’s all-hands meeting. Or maybe you can include it in an all-company email or Slack message to your teams.

Consider working with your internal communications team to get the word out. Ongoing communication is key to the success of any program.

3. Reward (and recognize) employees who participate

As mentioned, it’s important to consider how you’ll incentivize your employees’ participation. Consider a cash bonus structure. LinkedIn recommends anywhere from $2,000 to USD 5,000 for employee referrals.

But don’t lose sight of employee recognition. If an employee refers a fantastic new hire, recognize them. If you publicly recognize and thank employees for their participation, you’re more likely to see others participate, too.

4. Avoid discrimination and biases 

This is a big one. Work with your legal teams to make sure you’re in compliance with all laws and regulations around hiring. Make sure you think about diverse talent, like underrepresented minorities, people with disabilities, and more.

The downside of relying on employee referrals is that they will tend to bring in candidates in some way similar to themselves — if you lack diversity in your current workforce, referrals may make it worse. At the same time, if you are deliberate about creating a diverse and inclusive workforce from the start, a referral program will support that.

Be cognizant of any biases you or any other leaders in your organization may have. It’s a good idea to ensure that your hiring managers take part in diversity training. Also, promote and model inclusive leadership practices

4 companies who have stellar employee referral programs

It’s a good idea to lean on peers and other organizations in your field. Ask them how they’ve implemented employee referral programs. Consider learning what successes (and challenges) they’ve had.

At BetterUp, we value employee referrals and think we've been pretty succesful with our program as we've grown. It has helped us maintain our unique culture and commitment. The challenge is sometimes finding certain skill sets or experience levels when the company is at a transition point so employee referrals can't be your only sourcing strategy in this market.

Let’s take a look at some organizations that have stellar employee referral programs.

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Google

It’s hard to talk about employee referral programs without mentioning Google. A BetterUp customer, Google has one of the best-in-class employee referral programs out there.

Google started with a simple question in their interview process: “Who’s the best {insert job title} you know?”

The company captured referrals right from the very beginning: the onboarding process. They ask new employees for their recommendations. This created a culture of referrals where they saw an increase of 33% in referrals.

Enterprise Rent-A-Car

What better way to increase employee engagement than with friendly competition. According to LinkedIn, Enterprise Rent-A-Car decided to create a leaderboard. The leaderboard showed the top-ranking regions where employee referrals were being hired.

Not only did this spark competition, but it also created social connections between regions and teams. 

Salesforce

Salesforce took a social approach to its employee referral program. The company organizes what they call a “happy hour” recruitment event. Employees get to invite friends and family to introduce themselves to Salesforce recruiters.

Every employee who refers a candidate gets a gift, regardless of whether or not it worked out. The end result? More than 50% of Salesforce new hires come from employee referrals.

Warner Media

Another BetterUp customer, Warner Media has grown its employee base with the help of good ole word of mouth. Watch this video to learn more about Warner Media’s approach to career and employee development. 

Start hiring

When done right, employee referral programs can be a huge business benefit. 

If your organization is implementing an employee referral program, how will you measure its success? What are your goals for the program? How do you see it fitting into your recruiting strategy? How does it fit into your DEIB goals?

With the right people, guidance, and teams, your company can create a stellar referral program. Happy hiring! 

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Published January 10, 2022

Madeline Miles

Madeline is a writer, communicator, and storyteller who is passionate about using words to help drive positive change. She holds a bachelor's in English Creative Writing and Communication Studies and lives in Denver, Colorado. In her spare time, she's usually somewhere outside (preferably in the mountains) — and enjoys poetry and fiction.

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