How to Build an Effective Employee Referral Program from Scratch

In today's world, we take the advice of complete strangers seriously. We trust user reviews when choosing a restaurant or hotel. We check online reviews when purchasing almost anything over the internet - that's social proof in action.

However, most of us value the recommendations and opinions of our friends and family even more. Their lifestyles and preferences tend to closely match our own, so if they like something, we probably would too.

Employee referral programs take this concept and apply it to the world of work.

Referred applicants benefit from the knowledge that the company is a good employer and a good fit for their skills and preferences.

Employers benefit through lower hiring costs and a faster recruitment process, in addition to an improvement in the quality of hires.

The employee who referred the new hire is also more likely to remain at the company for longer if their referral is successful.

Convinced?

Planning your Employee Referral Program

If you want to create your own employee referral program (ERP) from scratch, the planning process is vital. Without any focus or direction, your referral program will be ineffective and short lived.

Start by asking and answering these questions:

• What's the goal of our referral program? To cut costs, reduce hiring time, or increase the quality of hires?
• How will employees learn about current vacancies?
• How will employees make referrals? Will there be a specific HR contact in charge of the scheme?
• Who will communicate the progress of applications to the referee?
• How will you measure the program's success?
• What budget is available to implement and maintain the program (and its rewards system)?

Now you should have a much clearer understanding of the form your ERP will take - and what it might cost you.

Best Practice

While every business is in a unique situation, you can learn from the failures and successes of other ERPs.

By following best practice methods, your ERP will stand a strong chance of gaining a positive outcome.

When to use your ERP

Given that you'll be dishing out cash rewards to staff for successful referrals, you may wish to limit the use of your ERP to hard-to-fill roles.

If your current recruitment methods are producing plenty of high quality candidates and hires who stay with your company for many years, the return on your ERP investment is likely to be very small.

Additionally, if you've tried out an ERP in the past, reflect on its results. Where did it have the biggest impact? What worked, and what didn't?

Targeting

While the vast majority of ERPs are open to all employees to use, medium and large companies may benefit by targeting specific groups of employees for referrals.

Instead of sending emails to all members of staff about open vacancies and the referral program, considering sending reminders to individuals with large networks, or networks that are mostly likely to contain the individuals you're looking for.

This tactic is particularly worthwhile if you're looking to fill senior management positions - your executives and top managers are most likely to know suitable candidates.

Marketing your company

During the referral process, your employees are your ambassadors. They'll try and persuade their network that your company is a good employer.

Essentially, they're acting as members of your marketing team - so ensure they're equipped with the knowledge to fulfill that role.

Consider giving referral cards to employees with large networks. They can be physical or electronic. These cards make it easy for your staff to 'recruit' their friends and family, or professionals they meet at trade shows.

Educate your employees on aspects of your brand, including your brand values, business objectives, and the ideal qualities of new employees.

Staff can then understand the 'target market' and only approach individuals who match your company's criteria.

This approach improves the quality of referrals.

Reward structure

For your ERP to function, you must incentivise employees to refer their contacts.

Here are some factors you should consider:

• Although cash rewards are standard, you could choose a lower cost option, such as an entry into a company-wide prize draw, or access to additional perks at work.
• You should give at least 33% of any cash reward to the employee once their applicant has been hired. You can stagger the remaining amount and make further payments if the employee stays on for a certain period (six months, a year, two years).
• Although it's tempting to withhold all the cash for at least a few months after the hiring decision, your employees won't appreciate this treatment - they've already played their part.
• Excluding some HR employees from referral schemes is standard - there may be a conflict of interest - but consider allowing them to take part, just without the cash incentive.
• Some ERPs provide variable rewards based on the salary of the position, in percentage terms.
• Time-sensitive bonuses or rewards will prompt employees to refer their friends quickly.
• Offer small rewards or handwritten thank you notes for referrals who weren't hired, but were on the shortlist.
• Give employees the option to donate their reward to charity.

Your reward structure will ultimately depend on your budget, the importance of fast recruitment, and the man-hours you have to dedicate to your ERP's administration.

Communication

Communication throughout the referral process is essential. Here's how it should work.

1. The employee should be notified when their contact applies for a position.
2. The applicant should receive an initial response to their application within 48 hours.
3. Inform applicants of each stage in the hiring process, and the timescales involved.
4. The employee should be kept up-to-date throughout the process, including whether the application was successful.
5. A follow-up meeting should be held to thank the employee for the referral.
6. If the referral was unsuccessful, the company should explain to the employee why the referral was weak.
7. Keep hold of the email addresses of any candidates who came close but weren't hired. You might have another job opportunity crop up in the near future.

If you fail to communicate with the employee and candidate, they'll lose faith in the referral program. The employee probably won't refer anyone in the future, and the candidate will be less than impressed if their application didn't receive a response.

Maintaining enthusiasm

Planning and implementing an ERP is relatively straightforward. Maintaining it is another matter entirely.

As with every business initiative, interest tends to die off as soon as managers and leaders stop promoting it. To prevent your ERP from going the same way, try the following methods:

• Start with relatively modest rewards and give them a boost as interest wanes.
• Reduce the barriers to referrals, making it as easy as possible for employees to take part.
• Keep publicising the scheme through the company intranet, email, and other platforms.
• Thank employees each time they take part.
• Share occasional ERP newsletters that showcase the program's success stories and reiterate its rewards.
• Assign at least one staff member as an ERP ambassador whose role is to promote the program.

You should also review the success of the scheme on a regular basis. Are the cash incentives high enough? Is the ERP fulfilling its purpose?

Final Thoughts

There's no one-size-fits-all employee referral program. If you're looking to create an ERP from scratch, take the time to consider your company's circumstances and what you hope to achieve.

Taking a long term view of your ERP is vital. It's important to garner the support of managers and leaders and commit to promoting the scheme over the coming months and years.

Keep track of metrics and ask employees for feedback on your ERP. Make changes as and when they're required.

A referral program forms just one part of your wider recruitment strategy. For more tips on everything from job ads to making the final decision, read our detailed guide to smart recruitment for small businesses.