Scalable Hiring: Four Common Misconceptions About Employee Referral Programs

Employee referral programs can be a highly impactful part of a recruiting strategy; they provide a pipeline of candidates who come pre-vetted by those who already know what it takes to succeed at your company  - your employees!  

After running a referral program for a few years (and helping some of our clients update or launch their own), here are a few of the most common referral misconceptions I’ve seen:

1. More money means better referrals

Generally, referral programs will offer anywhere from $500 to $2,500 as a standard bonus for a hire (and sometimes up to 10K for engineering roles).  When teams feel pressure to hire quickly, we’ve seen managers advertise a “double referral bonus” or other large amounts.  However, in analyzing these campaigns, it’s usually the case that doing so only slightly increases the number of resumes submitted, and very rarely does it result in an increased likelihood of a hire being made.  

INSTEAD: focus on keeping the referral program top of mind

One way to increase referrals without raising the bonus is to consistently promote the program and make it part of daily life at your company.  This can be low tech - we’ve seen clients have a “wall of open jobs” where they post slips of paper with open roles in a highly visible area.  Or this can be high tech - for example, investing in a platform that combines employees’ social media accounts and the company’s open jobs to suggest referrals for current roles.

2. Money is the only motivator

A cash referral bonus is not the only motivator for employee referral programs.  In conducting focus groups with dozens of employees about why they make employee referrals, many responded that while the money was nice (and considered standard), their main motivation was usually a combination of helping out a contact, helping out the business, and/or gaining business credibility.  This played out in the numbers as well - in one organization, about 40% of the referral hires were made by employees who were not even eligible for a referral bonus, suggesting that money is not always the main motivator.

INSTEAD: get creative with your incentives

That said, “cash” or “no cash” are not the only reward options.  Great referral programs tap into their company culture to motivate employees to submit qualified resumes.  At one of our clients, a “prize of the month” is raffled off - to get an entry, you submit a referral that is qualified enough for an interview (this solves the potential issue of having employees submit a high volume of unqualified resumes).  Even if that person does not get hired, your name is put in the drawing.  Employees have the ability to win things like company products,  round trip flights, game systems, outdoor equipment, etc.

3.  Employee referral programs are really simple

A referral program seems easy enough - employee submits candidate, candidate gets hired, employee gets bonus.  However, there are a surprising amount of gray areas that surface once the program is running.  Some popular ones are 1) an employee refers a candidate after the candidate is already in the interview process, 2) more than one person refers the same candidate, 3) an employee leaves the company before the referral bonus is scheduled to be paid out and 4) an employee with final say in the hiring decision seeks a referral bonus (e.g., the manager of the open role refers a candidate and knows they will receive money if they choose that candidate as the hire).

INSTEAD: make sure you cover your bases

When building a referral program, it’s worthwhile to think through possible issues like the ones above and decide what qualifies as a referral, and who is eligible to receive a bonus  - and to publish these guidelines so employees can review them. Try to keep the language positive, and make sure your list of restrictions is not too extensive (no employee will want to participate if there are 20 qualifications listed to get the bonus!)

4. The more hires you make by employee referral, the better

Done correctly, an employee referral program is a great way to hire quality candidates, increase employee engagement, and keep recruiting costs down.   However, there can be too much of a good thing.  As a company, it’s usually good to shoot for 25%-40% of your hires coming from employee referrals (smaller start-ups will likely have much higher percentages).  However, if you’re already at a couple hundred people and finding that 80% of your hires are employee referrals, the program may be serving as an avenue to “hire your friends” instead of “hire quality candidates.”  In this situation, you also run the risk of having too homogenous of an employee population.

As with any people program, success depends on good program design, as well as participation from both senior leadership and employees. Whether you’re launching an employee referral program or looking to improve the one you have, these four elements will help you get you one step closer to some fantastic hires.

written by Sam Feldman, Head of People Analytics