Employee Referrals: Worth Their Weight in Gold

Finding good talent in a tight job market requires recruiters to be proactive, leaving no stone unturned in an effort to identify suitable candidates. One goldmine for recruiting is your existing workforce.

Existing employees can be a valuable resource when it comes to referring potential new employees who will be a good fit with your company’s culture.

Good Employees Give Good Referrals

Researchers at the Institute for the Study of Labor (IZA) in Bonn, Germany, found that referrals work “because they allow firms to select workers who are better suited for particular jobs.” The IZA study concluded that referrals from existing employees often result in candidates who are a better match for specific jobs. “Of possible interest to managers is the fact that not all referrals may be equal,” noted the IZA report. “Our analysis suggests an underlying mechanism is behind the better performance of referred workers: That people tend to refer individuals who are similar to themselves.”

Moreover, the IZA research found that companies realize a better ROI from referrals that came from higher quality employees. “Thus,” they observed, “employers may wish to give priority to referrals from their best current workers.”

Executive Referrals

KPMG is indicative of how a company can leverage its existing employees for referrals.  According to a report by the National Association of Colleges and Employers (NACE), KPMG has been using an executive referral process since 2016. The firm uses referrals from its 3,000 executive partners nationwide to help fill internships and entry-level positions.

The program has paid dividends for KPMG, both in helping the firm find qualified candidates and in better tracking the recruiting process itself. “This allowed us to track how many referrals were coming through, and the time it was taking to get through them,” said Sean Treccia, the company’s national director of college recruiting. “The program helped us to find some diamonds-in-the-rough at smaller schools where we don’t normally recruit.”

Importance of Referrals

According to the Society for Human Resource Management (SHRM), employee referrals are an important recruiting source, with nearly 30 percent of new hires in organizations coming from employee referrals over the past decade.

“Creating and managing a vibrant employee referral program makes good recruiting sense because employee-referred job candidates are usually a good cultural fit and may need less on-boarding when hired,” notes a SHRM report. “Employee referral programs have also proven to be a cost-effective way to tap into a large, qualified labor pool of passive job seekers.”

Referral Program Best Practices

When designing an employee referral program, SHRM recommends making it easy-to-use and incentivizing participation with the right mix of rewards. According to SHRM, “Too many restrictions on who in the organization can refer candidates, or overly burdensome paperwork for employees to complete, may well put a damper on employee participation and the program’s success.”

While bonuses are a common incentive for referrals, SHRM also suggests additional perks, such as paid-time-off, gift cards, quarterly drawings, and public recognition within the company. Another best practice to encourage referrals is to provide feedback to employees on the suggestions they do make.

It is also important to put analytics in place to measure program performance. Finally, SHRM suggests using an internal marketing campaign to ensure ongoing employee participation. “Employers should consider branding their program so employees and candidates alike are familiar with the program, and come to expect consistent communications from it,” says SHRM.

Recruiters know that it can be a challenge to find the right person, especially for a hard-to-fill position. While tapping-in to your existing network of employees requires a concerted effort, the reward may just be new prospects who are a really good fit. In the long run, that will save time and money, while adding cohesiveness to your existing company culture.