Employee referral programs: What you need to know

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Posted by Jessica Bacher

August 8, 2012

An employee referral program can be one of the best sources for qualified candidates. Employee referral programs offer benefits that many other sources of talented candidates have yet to demonstrate, including:

  • Low cost per hire. Referral programs lower costs of external marketing needs, such as advertisements, because hiring managers are able to draw from an internal network.

  • High-quality hires. Employees are unlikely to recommend people they think are unqualified or unreliable.

  • Decreased time to hire. Just as word-of-mouth recommendations drive consumer decisions, employees effectively sell their company to the people they refer. Employees also tend to recommend people who they know are ready to make a job change, which also speeds up the hiring process.

  • Improved new-hire retention. A study by The Ohio State University found that employees hired through referrals have a 25 percent higher retention rate than employees hired through other methods.

  • Enhanced employee engagement. A referral can be an opportunity to strengthen the bond with existing employees.

With all of the benefits, why do so many organizations struggle to make this their number one recruiting source?

Many times, the manager of an employee referral program is uncommitted or fails to prioritize the effort. Do not entrust your referral program to just anyone with bandwidth. Rather, place your program with a willing person or group that understands the value of the program and has interest in employee engagement.

If your company’s employee referral program is in need of a redesign or revitalization, here are four things to consider:

  1. How is your program performing today? Programs that are well run sustain 30 percent of hires from employee referrals, while best practices can generate up to 50-75 percent of all hires.

  2. Do you know why your employees choose to refer? Identify the reasons so you don’t impede them during the redesign.

  3. Do you know why employees choose not to refer? Design a well-thought-out program that addresses all issues and deterring factors. A single issue that goes unaddressed could poison all the other good factors and stunt the effectiveness of the program.

  4. Do you know when to revisit the initiative and what your commitment level is? Employee referral programs should be reviewed as part of your annual, strategic planning for talent acquisition, or whenever your business needs change.

Check back soon for the most common factors that can hinder the success of an enterprise referral program.


This post was written by Jessica Bacher. With extensive experience as a recruiting operations manager, Jessica has provided strategic planning and consultation to leading health care, call center, retail, telecommunications and government clients worldwide, and has led complex initiatives for Fortune 500 organizations. In 2010 and 2011, the Electronic Recruiting Exchange, the largest recruiting intelligence community, recognized her branding and digital solutions work, and Jessica was awarded the Creative Excellence Award for her work in employment branding for Latin America. Learn more about Jessica.

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