Relying on your employees’ eye for talent

To succeed, employee referral programs should come with training and communication plans

As the labour market tightens, more and more employers are turning to their own employees to help recruit top talent.

Employee referral programs (ERPs), where employees recommend qualified friends, relatives or colleagues at other companies, can be an excellent source of candidates. Many ERPs also offer something for employees. For the employee whose recommendation leads to a hire, there are incentives such as cash, travel or extra time off.

There are many benefits for the company as well. Employees who are hired on through referrals tend to stay with the company longer than other candidates, according to an Ohio State University study. The 2000 study, Recruitment Source Research: Current Status and Future Directions, found the retention rate for referrals is 25-per-cent better than for other kinds of hires.

And unlike other approaches, which tend to only draw active job seekers, ERPs offer access to passive job seekers — qualified people who have not signalled a willingness to move but who might under the right circumstances when encouraged by a friend or a trusted colleague.

ERPs are also a quick, low-cost and high-quality way of finding staff. A Mercer/Society for Human Resource Management (SHRM) survey of 586 HR professionals in 2001 found 69 per cent described ERPs as one of the most cost-effective recruitment methods available. Eighty per cent said ERPs are more cost-effective than recruitment agencies. A 2005 Canadian HR Reporter survey of 166 readers found that ERPs were the best source of new talent, beating out more traditional avenues such as newspaper advertisements and online job boards.

But ERPs won’t do away with the more traditional recruitment methods, such as recruitment agencies, job fairs and career ads. Instead, think of ERPs as an additional arrow in an employer’s recruitment quiver.

Companies have always relied on staff for some referrals, although the process was traditionally ad hoc. ERPs entered the big leagues during the frenzy of the tech boom in the 1990s, when cash-rich Internet firms, desperate to hire vast numbers of people, offered employees new cars or money — sometimes tens of thousands of dollars — for each recommendation that turned into a hire.

The dot-com bust brought everybody back down to earth. ERPs didn’t disappear but the level of rewards dropped, with recruitment bonuses now typically in the $500 to $5,000 range (considerably more for senior management or specialized expert hires). The process has also become more formal and more effective.

When taking the ERP route, it’s not enough to just invite employees to go out there and recruit. The odd employee might be a champion salesperson but most wouldn’t know where to begin.

Instead, the employer should implement communication and training programs to acquaint staff with the rules and policies surrounding recruitment. This is usually also a good time to help staff learn how to talk positively about the company to prospective recruits.

Some companies also ask staff to keep an eye out for talent when they attend seminars, professional association meetings or industry conferences. The idea is to encourage an eye for talent-spotting and to ensure ERPs don’t turn into a mechanism for employees to refer only those people they know really well.

Employees may feel an initial reluctance to get involved with such a process. They may worry about the consequences if a recommendation turns out to be a dud. And what happens to a friendship if the recommended person doesn’t make it past probation?

The answer lies in reminding employees that they’re not actually hiring anybody. Instead, they’re making recommendations that will have to wind their way through the company’s usual HR recruitment process. If the prospect makes it through that process, chances are excellent the fit will be right.

Common sense should be used in determining employee rewards. Some firms prefer to slice it up so part of the bonus is paid at the time of hire, with more after the new employee clears probation and the rest after the recruit celebrates his first year with the company. Cash rewards have been shown to get people’s attention, but most employees don’t expect vast sums, and many are happy with other incentives such as free travel or extra time off.

ERPs cost less than other approaches, but they’re not free. It’s therefore a good idea to do a back-end analysis 12 to 18 months after launching the program. According to an article published this February in Electronic Recruiting Exchange, titled “Upgrading or Reenergizing Your Referral Program: 20 Simple Actions You Can Take,” the average proportion of hiring from ERPs is 40 per cent, so companies doing significantly less than that should consider reinvigorating their programs.

Web-based vendor solutions now make it easier for companies to launch more comprehensive programs and offer employees simple access and quick response. And companies would achieve further efficiencies by having such solutions fully integrated with their other HR solutions.

ERPs will never fully replace traditional recruitment techniques. But when companies generate 40 to 60 per cent of new hires through these programs, it’s pretty clear there will always be a place for them. These programs also help foster a corporate culture where staff take responsibility for recruitment and appreciate its importance to the company.

Jacques Gaumond is the vice-president sales and marketing for Technomedia Training Inc, the Montreal-based provider of web-based solutions for talent management and development. For more information, he can be reached at (514) 287-1561 ext. 301, [email protected] and www.technomedia.ca.

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