How to Scale Recruitment with an Employee Referral Program

Eighty-two percent of employers rate employee referral programs as offering the best return on investment of any recruitment channel.

After all, you're effectively turning happy employees into expert recruiters—people who know your company and culture inside out and can make trusted recommendations to their friends and associates. Better yet, it's a way to ensure that every penny of HR investment—whether you're improving candidate experience, optimizing your onboarding, or simply improving the ongoing employee experience—has a wide-reaching benefit for your recruiting process, making it easier to find top talent.

Today, we're showing you how to set up, optimize, and analyze your own employee referral program.

What is an employee referral program?

An employee referral program is a structured process for encouraging employees to refer members of their network to open positions. Research has shown that this type of internal recruiting strategy can fill vacancies in a faster, more efficient way than traditional recruiting.

How to build an employee referral program

A basic employee referral program is easy to set up: You need a way for employees to make referrals, and a reward to encourage them to do so. But turning a basic program into one of your best recruiting sources requires a carefully considered structure—one that aligns with company goals and improves over time.

1. Define the goal

Like any recruiting tool, employee referral programs can be used to achieve any one of several distinct goals. The program's structure—the incentives offered, the mechanism built to enable referrals, and the metrics used to analyze performance—should all be shaped around the single, specific recruiting goal your company is looking to achieve, whether it's:

  • Filling a specific role. Every company has job openings that are difficult to fill: a developer role that requires a niche skill set, or a marketing VP role that requires extensive experience. An employee referral program allows you to effectively crowdsource the best candidates, galvanizing your workforce to tap into their personal networks to find ideal candidates for each job posting.

  • Increase applications in a particular area. Other companies use employee referrals to scale up candidate generation in specific areas—boosting sales applicants in advance of a big sales initiative, or finding good-fit finance candidates for a new office opening in a different part of the country.

  • Improve diversity. Referrals are a powerful tool for addressing diversity challenges. In a particularly high-profile example, Intel doubled their normal referral bonus “for candidates who are women, minorities, or veterans.

Before rolling out a referral program, it's important to reflect on these goals, deciding on a priority, and considering how the program's structure can help achieve it.

2. Offer the right incentive

Employees already have their hands full with the responsibilities of their day-to-day roles. Making a viable referral—thinking about which friends, family members, and past coworkers to refer, reaching out to gauge interest, and sharing information about the role—is another demand on their time.

Incentives help justify the time and energy required to participate in referral programs and provide an additional motivator—whether monetary or nonmonetary—to reward employees and encourage them to find great candidates. There are two types of incentives:

  • Monetary incentives. Many companies offer cash incentives to encourage employee referrals. Given the high costs of sourcing and retaining great candidates, a substantial referral bonus is usually offered. Sixty-nine percent of companies award a bonus of $1,000-$5,000, which often represents a positive return on investment. But as Jeff Moore, head of staffing for Google's Consumer Hardware business, explains, monetary rewards can sometimes create an incentives mismatch: “Promise employees a thousand dollar bonus for every successful referral and they’ll care less about whether their friends and family are a great fit.”

  • Nonmonetary rewards. It's also common to offer other rewards—prizes, food and drink, tickets to upcoming events, additional paid time off, social recognition—in lieu of monetary compensation. Research suggests that this approach may better align with an employee's own motivation: 35% of employees made a referral to help their friends compared with just 6% who did it for “money and recognition.”

Ultimately, there's no one-size-fits-all incentive. Your company culture, your budget, your existing compensation philosophy, and your employees' preferences will influence which incentives will work best.

3. Share your mission and values

The best referrals come from employees with a deep-rooted understanding of your company's mission and values. Those staff members are in the best position to find candidates who fit in with every aspect of the role—matching the skills and experience required but also enjoying the company's culture and workplace environment.

It can be difficult to succinctly communicate a company's culture, so it's a great idea to proactively help employees identify the core values you'd like them to use when vetting referrals:

  • Create a culture deck. A culture deck—a short series of slides focused on your company's beliefs and overarching goals, like this example from Grammarly —is a great way to succinctly document your company's mission and core values. The simpler this deck, the easier it is for employees to communicate your ethos to potential candidates.

  • Hold a short training workshop. A simple workshop allows employees to ask questions about ideal applicants and discuss how intangible values like “customer service obsession” translate into real-life experience, skills and attitudes.

  • Reinforce a handful of core values. While a company's workplace culture might span a variety of different attitudes and ideals, there is always a handful of core values that remain integral to every part of the company's operation. For Zappos, that was a desire to “WOW through service;” for Buffer, a belief in the importance of company-wide transparency.

To avoid potential mismatches, one U.S. energy company—DCP Midstream—even created an advertising campaign to remind current employees that every referred friend or acquaintance should prioritize workplace safety above all else. As the tagline explains, “Not every friend of a friend is cut out for a job at DCP. Only refer those with the skills and experience to meet America's demand for energy.”

4. Reduce friction

Every extra step in the referral process—searching for open vacancies, sharing a job description, making the referral to the recruiting team—is a potential barrier to completion. The more complex or complicated your referral process, the fewer referrals you'll receive. Small process improvements can have a big impact, dramatically streamlining the process and making it quicker and easier for employees to recommend quality candidates:

  • Create an internal job database. As Jeff Moore explains, “Employees at a large company might not be aware of every job at their workplace. If you create an internal job database with role descriptions, employees can understand whether someone is a good fit for less familiar positions.”

  • Break vague asks into specific questions. Google's former SVP of people operations, Laszlo Bock, boosted Google's employee referrals by over a third by ditching vague, hard to answer questions like “Do you know anyone who wants to work at Google?” for hyperspecific questions like “Who is the best finance person you’ve ever worked with?” and “Who is the best salesperson in New York?”

  • Give employees regular feedback. Making a referral is a risk—if a referred candidate has a poor experience, it reflects poorly on the employee. To mitigate the risk, proactively communicate with both candidate and referrer, updating them as the referral progresses.

Each of these tactics can be reinforced at the company level, with hiring managers and executives regularly mentioning the referral program during meetings and in team emails. They can even incentivize the process by adding an element of competition: offering a prize to the team or department with the most successful referrals.

Ditch vague, hard to answer questions like “Do you know anyone who wants to work at Google?” for hyperspecific questions like “Who is the best finance person you’ve ever worked with?”

5. Track source metrics

An employee referral strategy is a recruiting channel like any other, and its performance should be evaluated in the same way as other sources. Recruiting metrics provide the tools required, allowing you to measure the program's impact on the hiring goals established earlier in the process.

While there are various metrics to track, it's often useful to choose a “North Star metric”—a single performance measure that directly correlates with your primary goal.

  • Retention. If your primary goal is to boost the tenure of employees and reduce employee churn, measuring retention—the percentage of employees who remain with your company after a certain period of time—is a useful benchmark. One study found that the two-year retention rate of employee referrals was 45%—significantly higher than job boards, at just 20%.

  • Time to hire. If your hiring process is moving too slowly, analyzing time to hire—the length of time from job application to hire—will help reveal the efficacy of your referral program. When compared with employees sourced through career sites, referred candidates are 55% faster to hire.

  • Diversity. For companies looking to improve diversity, it's essential to understand how the makeup of the workforce changes as a result of the referral program—which one study called “the most productive source for diversity hires.”

Long-term employee fit is the ultimate performance benchmark: Any great recruiting source will generate new hires who excel in both their performance and their fit with the wider company culture. Thankfully, a broad range of companies report on the high-quality of referred hires— one study even reported that 88% of employers viewed referrals as the single best source for “above-average applicants.”

Turning employees into expert recruiters

Every great company spends time and energy creating a rewarding workplace for their employees. That investment pays dividends: happy, engaged employees are any company's greatest asset, and by building a straightforward process for encouraging referrals, those employees can become your greatest recruiting asset too.

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