Employee referral programs replace expensive headhunters and are an effective way to find and retain new talent. Not only start-ups, who often acquire new colleagues from their circle of friends, are convinced of this, but also well-known German companies such as Siemens and Deutsche Bank. In the following article, you will find out how you can build up a referral network within your workforce by introducing an Employee Referral Program.
What Is an Employee Referral Program?
Employee referral programs are based on the assumption that employees know prospective candidates with similar skills and attitudes. Furthermore, new employees hired through a personal referral show more motivation and loyalty than those recruited through traditional channels. In practice, it works like this: employees make referrals of specific potential candidates or share a job advertisement via their private network, for example via their social media accounts.
In the case of a hiring, the employee who made the referral usually receives a bonus, which creates an incentive for him and other employees to continue making referrals in the future. Here you can find additional information on employee referral recruiting strategy. Under the following link, you can find out more about the special characteristics of employee referral programs.
Why Are More Companies Choosing Employee Referral Programs?
Another reason to rely on the recruiting-employee approach is that it is highly successful. Deutsche Bahn alone has more than 1,000 new hires every year through its employee referral program. If you convert this number to the annual requirement of the group of 7,000 to 8,000 new employees, it shows that the employee recruitment program takes on 10 percent of the employee acquisition.
In addition, studies show that potential applicants believe friends, acquaintances and relatives who recommend a company and speak positively about it much more than conventional forms of applicant marketing. This fact alone can serve as a good argument for using employee referral programs and employees as brand ambassadors. In addition, this unique form of employee acquisition can be used in all industries: in large, medium-sized and small companies, and for almost all positions.
Employee referrals are also very helpful when it comes to filling niche jobs. After all, the employees already employed in the respective area know best the particular requirements of the position, as well as the skills of their acquaintances, and are thus able to make tailored referrals. The applicant market has been scoured. Many industries are affected by an increased shortage of skilled workers, and classic recruiting methods have reached their limits. Therefore, HR departments are looking for new recruiting strategies to address prospective candidates. Involving employees in the recruiting process opens up new options.
Talent scouts often have an extensive network, whether in a circle of friends, from university visits or through previous employment relationships. Contacts are made for a lifetime and are often kept, especially while LinkedIn and XING exist. If employees recommend job offers in their networks, recruiters can reach a large number of qualified workers who may not be actively looking for a new position. Employee referrals are thereby the tool for recruiters to address the passive labour market, which is increasingly important in times of a shortage of skilled workers. So one or another passive candidate will think about moving job, as long as they get authentic insights into the new company from someone they trust.
The talent scout provides first-hand information so that the potential candidate can assess in advance, whether the position and the company are right for them. The talent scout also becomes a brand ambassador and speaks outside the company about the employer. Recruiters, in turn, benefit from professionally and culturally suitable candidates. The time to hire is also significantly shorter, as the applicant already knows more about the company.
If the company also uses a digital employee referral program, this can be integrated into an existing applicant management system and there is no additional effort. On the contrary, the administrative effort is even reduced. Finally, employees are automatically notified of a new job. Recruiters keep track of incoming referrals and can reward and track them accordingly when hired.
What Are the Advantages of Employee Referral Programs?
Employee referral programs save time and money.
If your current employees make a pre-selection of suitable candidates, the company saves a lot of time and can deal directly with them instead of weaker applicants. In addition, candidate screening and job interviews are less time-consuming, and the referred hires are often better prepared because their colleagues help them prepare for the interview.
The general recruitment costs are also lower, as there is no need to post expensive job advertisements or hire headhunters. The larger is the pool of employee referrals, the more the company can do without external recruiting measures. That is due to the more tailored acquisition of new employees. If the hiring takes place through an employee referral program, the likelihood is higher for the candidate to identify with the company and its values.
Experience in many companies shows that employees recruited in this way familiarize themselves with the role more quickly and are therefore productive earlier. This is also due to the fact that the employees who make referrals feel responsible for their referrals and therefore support their acquaintances more strongly from the start.
Vacancies are filled faster and there is greater potential for long-term employment relationships.
According to the “Recruiting Trends 2020” study by the University of Bamberg, referred employees are more loyal than other candidates and remain loyal to their new employer for longer. Their turnover rate is very low compared to employees who were hired through different recruiting strategies.
Hiring through employees’ referrals positively influences the working atmosphere. Employee referral programs positively affect corporate culture since friendly relationships promote a feeling of togetherness throughout the company. The opportunity to participate in the hiring process gives employees a sense of appreciation and accordingly increases employee motivation and satisfaction. The team spirit also benefits from this as well as the employer brand. After all, having a lot of successful referrals bodes well for company branding.
What Are the Challenges of Employee Referral Programs?
Facing the disappointment of committed employees.
One danger of employee referral programs is that employees who repeatedly make referrals of potential colleagues but who are ultimately not hired will feel disappointed. Especially when the employee referral program is organized as a competition, these feelings can be very strong and lead to dissatisfaction. As a result, a sense of togetherness and team spirit suffer.
When using employee referral programs, a sure instinct is required. Hiring a large number of employees through employee referrals, thus through personal relationships, can negatively affect the company culture and the working atmosphere. The danger is that cliques will form, and a feeling of nepotism will develop.
Having less diverse workforce.
Especially companies that rely almost exclusively on the employee referral recruiting method will find that they tend to hire more employees from the same age group and social class. Instead, recruiters should pay attention to building diverse teams by gathering the referrals made by employees from different age groups, with different gender, and ethnic and cultural backgrounds.
Having difficulties in measuring the success of employee referral programs.
This issue raises the question of how HR managers can sensibly measure the success of an employee referral program. It is not easy to define in advance meaningful KPIs (Key Performance Indicators).
These metrics – for example, the employee retention rate and the employee turnover rate based on employee referrals – must be carefully monitored and adjusted if necessary. Our tip is to orient the KPIs to your recruitment goals. For example, if the employee referral program aims at retaining employees as long as possible, the metrics should also reflect this objective.
What Are the Differences Between Digital and Manual Employee Referral Programs?
The simplest version of employee referral programs is manual communication. These aim to encourage existing employees to recommend their employer to colleagues and acquaintances working for other companies. Such a request for referral can, for example, take the form of a social sharing button on the company’s careers page. Such manual attempts to set up an employee referral program, however, quickly reach their limits.
A digital referral program, on the other hand, saves the company an enormous administrative burden. In addition, with such a system, HR managers can determine KPIs for measuring the success of the employee referral recruiting method in a very simple way. Therefore, when introducing a digital employee referral program, it is vital to select the software that is able to integrate with your existing applicant tracking system and human resource management system. Check here all Firstbird’s possible integrations into your current HR workflow.
There are several employee referral programs out there. The systems differ both in their specific application scenarios and in the processing of employee referrals. Depending on the program, you have the option of using gamification elements, anonymized referrals or interfaces to social media, for example. In addition, providers such as Firstbird offer onboarding advice, i.e. advice on implementing the program, including developing an individual bonus strategy and selecting KPIs.
The needs can be very company-specific, therefore a detailed preliminary research of the individual offers is recommended. For the success of the digital acquisition programs, the framework conditions in the company must be right. For example, job advertisements and referrals should run via an online platform. Only then will employees have the opportunity to share vacancies within their social networks with just a few clicks and easily recommend you as an attractive employer. The software then automatically informs your employees about new job postings by email and also receives information on successful referrals and the bonuses paid.
Before doing this, it is crucial to communicate the implementation of the employee referral program to your employees, regardless of whether it is via the intranet or the executives. Every employee should know that the program exists, how it works and how they can benefit from it themselves. Read here how you can best communicate the introduction of an employee referral program to your employees.
In this 10-step guide, you will find out what else you should consider when introducing an employee referral program.
Download 10 Steps To Your Successful Employee Referral Program
How Can an Employee Referral Bonuses Serve as an Incentive?
An important question that companies have to ask themselves when introducing employee referral programs is introducing rewards for referrals. For employees to recruit their friends or acquaintances requires a certain amount of effort. Therefore, employers should award their commitment in some form.
However, the fundamental question is whether the incentives should exist only in the form of monetary rewards. What can be non-monetary incentives? Should the financial incentives be paid off as cash bonuses? In fact, experience shows that both monetary and non-monetary awards stimulate and maintain the willingness of employees to make referrals.
You can also find inspiration for the right amount or type of bonus for your company in the Firstbird Employee Referral Benchmark Study 2021.
Download the Benchmark Study
Questions Regarding the Rewards for Employee Referrals
Once you have decided to pay out rewards for employee referrals, you should ask yourself the following questions:
- For which positions are there which incentives?
- Are they all rewarded equally or individually?
- Are the employees paid proportionally (for example, with a certain percentage of the monthly salary)?
- Are there partial or graduated payments?
- What is the award based on? For example, does the “value” of the position or the degree of difficulty of filling play a role?
- When does the employee receive the bonus? For example, is it due when the new employee signs the employment contract or after the probationary period has expired?
Every company has to decide on these questions for itself. The questions of whether HR or the individual specialist departments budget the awards and what needs to be considered when taxing monetary incentives must also be clarified individually.
The use of cash rewards as incentives is definitely controversial. On the one hand, monetary rewards create a high short-term incentive to make referrals. On the other hand, they can lead to employees only making referrals in return for payment of a bonus. In addition, the company must counteract the tendency for employees to aimlessly ask around in their circle of friends just to receive the bonus. Here you can find out how to use bonus payments to motivate your employees to refer suitable candidates for vacancies.
Alternative Rewards to Cash Bonuses
Of course, there is also the option of giving alternative rewards to cash bonuses. Quite a few companies base their employee referral programs on non-monetary rewards. Below is a selection of alternative ideas:
- Days off or additional vacation pay
- Free training
- Fuel, travel or adventure vouchers
- Technical devices such as smartphones or tablets
- Visibility in the company, for example a mention in the employee magazine
- Donation for a good cause
There are practically no limits to your imagination. It is also conceivable, for example, to draw a high-quality reward among all employees participating in the referral program.