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Are Employee Referral Programs Good For Business?

If you have great employees on staff, why not hire more just like them? That’s the philosophy behind employee referral programs, which can help attract talent who may not otherwise find you (and can lead to better employee retention as well). A recent Jobvite survey found that 75 percent of the workforce are open to job opportunities but are not actively looking. It’s a phenomenon they call “passively active seeking.” A referral from a friend could be just the motivation your next great employee needs to connect with you.

Dr. John Sullivan, professor of management at San Francisco State University and a well-known HR thought leader, recommends companies get close to half of all new hires from employee referrals. According to Dr. Sullivan, employee retention after one year is 46 percent for employee referrals, compared to 33 percent from career sites and 22 percent from job boards.

E-commerce powerhouse Bigcommerce (with headquarters in Austin, Texas, and offices in Sydney, Australia) counts employee referrals among its most important recruitment sources. And for Bigcommerce, recruitment is no small endeavor. In the past year, the company has doubled in size to about 200 employees and expects to continue growing rapidly in the coming months. Joy Woods, Bigcommerce’s senior recruiter (aka, “recruiting goddess” as stated on her business cards), attributes at least 25 percent of the company’s recent growth spurt to its employee referral program.

“For us, culture is imperative,” she explains. “We trust that our employees know better than anyone who will fit – and, more importantly, who will elevate – our culture.” And quite frankly, Woods adds, who has the most to gain or lose than the potential co-workers themselves?

Woods attributes a phased approach as the single most important aspect of Bigcommerce’s employee referral success. With a phased approach, referring employees know what to expect at every turn, and are continually encouraged and rewarded. For Bigcommerce, this means increased compensation throughout the process: A $5 Starbucks gift card for a phone screening followed by a $25 Amazon gift card for an on-site interview, for instance. If the referral is hired, the referring employee receives a bonus, 50 percent paid at hire and 50 percent paid within 90 days into employment.

“The phased approach works well, in part, because some job openings require a much longer process to fill than others,” says Woods. Without small incentives, the “pay out” only comes at the end and only after a successful hire, which may cause the referring employee to lose the motivation to continue referring others.

Be mindful, however, that money should not be a stand-alone motivator.  Bigcommerce recognizes referrals during weekly employee meetings to keep the program top-of-mind and to provide an opportunity to (quite literally) pat the backs of those who participate. Additionally, Woods points out, employees see referrals as an important way to proactively help maintain the corporate culture that attracted them in the first place.

Are there minuses to an employee referral program? Programs that fail tend do so because expectations were not properly set. Feelings could be hurt if a close friend or colleague who was referred doesn’t get hired. And, sometimes, the rules in the referral program are so complicated that employees don’t participate because they simply don’t understand how or why they should. Dr. Sullivan prepared a two-part series, “The Complete List of Employee Referral Program Best Practices”, which can help you create a program that’s clear and workable.

Woods concludes that employee referrals can be used as a tool for something even more valuable than recruitment. It can be an indicator of employee satisfaction. Bigcommerce measures this indicator on what Woods affectionately calls a “mojo meter.” What does she consider success? “More than 90 percent of our employees should want to recommend us as a place to work.”

Do you have an employee referral program in place? If so, please share what has or has not worked for you.

Image: Marvelens |