Employee Referral Guide: Employee Referral Program, Bonus, & More

They say in marketing, nothing works better than word-of-mouth. So, its equivalent in candidate sourcing, ‘employee referral’, should be worth a recruiter’s time.

Automated sourcing, candidate poaching, eccentric EVPs, etc., keep the talent war heated among companies of all sizes. So, proactive recruiters do not rely solely on external sources – which often equates to a time-consuming and costly process – rather start with churning their own talent pool. An Employee Referral Program is a great sourcing strategy for two major benefits — saves candidate sourcing bandwidth and brings in applicants with one layer of filtering. No wonder why it already accounts for 30-50% of all hires^[1]. And the same source reports that the cost-per-hire is also $1,000 lower on average for employee referrals than other sources ^[1].

In this guide, we are going to talk about the various aspects of employee referral programs, including its benefits, its challenges and how to build a robust referral plan. We’ll also examine the employee referral example of some MNCs to pick from their referral bonus ideas. In the end, we’ll touch upon some most common queries on employee referral programs and bonuses.

But first, let’s clarify the employee referral meaning.

What is an employee referral program?

An employee referral program is a recruitment strategy where a company’s current employees are incentivized to refer qualified candidates for job openings in their social/professional circle. These incentives, or employee referral bonus, are typically in the form of monetary compensations.

A form of direct sourcing, it’s basically tapping into one’s internal workplace networks and resources to discover candidates for open positions. An employee referral program aims to make inbound recommendations a trusted, reliable, and sustainable source of aspirants.

Employee referral programs have numerous advantages for organizations, from saving time and hiring costs to ensure a high-quality candidate pipeline. Next, we dive deeper into these benefits that make employee referrals the favorite source of applicants of 90% of employers^[1]!

What are the benefits of employee referral programs?

Saves hiring costs and time

With employee referrals, companies can start the sourcing process at a more advanced stage in the recruitment funnel. Studies reveal that when compared to online career platforms, employee referrals can half the time of hire – from 55 days to 29 days^[2]! When it comes to the cost of hire, referral programs can save organizations over $3,000 per hire^[3].

Improves hiring quality

Since employee referrals are driven by existing personnel who already have an innate understanding of the company culture, requirements, and salary range, they will naturally recommend people who are more likely to flourish in such an environment. This organically ensures a high quality of new hires.

Increases retention rate

Once companies get their quality of hire right, they naturally enhance retention rates for employees as a result. Additionally, the referring employee may feel a sense of responsibility and investment in the success of the referred employee, which can further enhance retention rates.

Enhances employer branding

Employer branding is critical beyond hiring, but ways to enhance it are generally costlier or time-taking. Interestingly, employee referral programs can also contribute to the employer brand because your employees transform into company ambassadors; spreading positive and authentic messaging about the organization’s culture.

Accesses passive candidates

Employee referral programs allow companies to access passive candidates who may not have otherwise applied to the company. Current employees are more likely to know individuals who are currently employed or not actively seeking new job opportunities but may be interested in a new role if presented with the right opportunity.

Looking at these benefits, investing in an employee referral program sounds like a great idea. However, before you go ahead with ideating employee referral bonus, planning execution, and vetting the referred candidates, know the limitations of job referrals as well. It will help you strategize your sourcing better.

Challenges of employee referral programs

Complicated process

Many companies end up making employee referrals complex to participate in. Some programs also fail when employees are not informed about such programs properly or cannot track referrals suitably.

Communication gaps

Since, in employee referral programs, employee engagement becomes an extension of candidate engagement, the game can be lost in the communication gap. In the case of employee referral, it could be employees being uninformed about how to start, where to report, and what are required for a successful job referral.

Unattractive rewards

If the bonus offered for successful referrals is unattractive, employees may not feel incentivized enough to refer quality candidates, leading to a decrease in the effectiveness of the referral program.

Employee referral bonus is certainly critical, so we’ll be picking it up in a later section. Before that, let’s look at the stepwise outlining of a robust employee referral program.

Steps to build an employee referral program

Step #1: Audit

Start with a audit of your open positions, the skills and qualifications for each, candidate personas, and so on. You should also have specific objectives such as the minimum timeline for new recruitment while allocating your resources and designating varied positions for the program set-up.

Step #2: Outline

Create an employee referral strategy that is easy to understand and follow for your employees while ensuring employee referral bonuses are motivating enough to encourage job referrals. Clearly define the terms and conditions for participation as well so, there is no conflict later.
You should also explore ways to automate the entire employee referral process through tools such as email templates and ATS (applicant tracking systems).

Step #3: Promote

Promote your employee referral program strategically. Experts advise launching it at an all-employee meet. You can build a promotion and drip email campaign internally, along with organizing referral parties, referral and networking events, and so on.

Step #4: Maintain

Once you launch your employee referral program, remember to maintain its momentum. Appreciate your employees for their efforts and encourage them to give you new ideas on the program and how to keep things engaging for aspirants. Keep tracking progress and refining your strategies regularly.

While you now know how to create an employee referral program that navigates it challenges, it’s always recommended to refer to what’s working out already. And what better to refer to than the tech giants themselves.

Employee referral example from tech giants

Google: Questioning format for employee referrals

Google uses a questioning format to prompt employees to refer the best candidates for specific job roles, such as coders or designers. This helps to ensure that referred candidates are an adequate fit for the job requirements and increases the likelihood of successful hires.

Intel: Diversity initiatives through employee referral bonuses

Intel offers double employee referral bonuses for successfully hiring women or minorities through its official referral program. This not only helps to attract quality hires, but also promotes diversity hiring at the workplace.

Fiverr: Gamification for employee referral competition

Fiverr uses a gamification technique to incentivize competition among company personnel. Employees earn points for referring quality candidates and sharing job openings, which are displayed on a leaderboard. This creates a fun and engaging atmosphere, encouraging employees to participate actively in the referral program.

A common thread across these employee referral examples is the attractive employee referral bonus. As mentioned earlier, the more attractive the job referral bonus, the higher the chances of its participation. So, let’s explore those ideas next.

Most popular employee referral bonus ideas

While a direct monetary reward for a successful job referral is the most obvious choice, it’s not the only one that attracts participation in employee referral programs. Below we list some most common employee referral reward ideas with proven results.

Extra vacation days

Offer employees who make successful referrals an extra day or two of paid time off as a reward.

Lunch with the CEO

Give employees the opportunity to have lunch with the CEO or other senior executives as a reward for making successful referrals.

Company merchandize

Offer company-branded merchandise such as t-shirts, water bottles, or notebooks as a reward for successful referrals.

Upskilling opportunities

Provide employees with access to professional development opportunities such as conferences or training sessions as a reward for making successful referrals.

Charitable donations

Allow employees to choose a charity of their choice for the company to make a donation to on their behalf as a reward for making successful referrals.

Team outings

Organize a team outing such as a happy hour or team-building activity as a reward for successful referrals.

Employee recognition

Publicly recognize employees who make successful referrals through company-wide announcements or other forms of recognition.

Technology upgrades

Offer employees a technology upgrade, such as a new laptop or smartphone as a reward for successful referrals.

Commuting perks

Provide employees with parking or commuting perks such as a reserved parking spot or public transit pass as a reward for successful referrals.

Workplace flexibility

Offer employees increased flexibility, such as the option to work from home or flexible work hours, as a reward for making successful referrals.

Now that said, it is important to be mindful of potential unintended discrimination when designing an employee referral program or selecting rewards, as it could result in a disparate impact on individuals of a certain race, religion, national origin, or other protected class.

Key points to consider for the success of employee referral program

• Apply the same qualification criteria to all candidates, including those employees who are referred.
• To maintain workforce diversity, use various recruiting methods when promoting job vacancies within the organization.
• Ensure that the employee referral program is open to all employees, regardless of their department, division, or other characteristics.

By far, you’re all set with the outline, rewards, and setup of a successful employee referral program. But for it to work for long, it should also be tracked and tweaked timely.

Measuring the success of employee referral program

HR professionals should include how the program will be measured at the design phase of an employee referral program to see if it has met its intended strategic goals and outcomes. Analyzing your results will also help you discern your employee referral program’s best practices and bottlenecks.

The most commonly used quantitative and qualitative employee referral metrics are:

• Employee referral rate: The percentage of hires that come from employee referrals compared to all hires made.
• Participation rate: The percentage of employees who participate in the referral program.
• Referral to hire ratio: The number of referrals made to the number of hires resulting from those referrals.
• Hiring manager satisfaction: The level of satisfaction of the hiring manager with the quality of referrals received.
• Candidate satisfaction: The level of satisfaction of referred candidates with the recruitment and selection process.
• Referring employee’s satisfaction: The level of satisfaction of employees who make referrals with the referral process and outcomes.

It’s also recommended to continuously analyze the workforce and applicant pool to evaluate the effectiveness of the employee referral program in terms of diversity, quality of hires, and resulting tenure. If the program is not meeting the desired goals and is negatively impacting workforce diversity, consider revising the program.

Over to you

Successful employee referral programs do a lot for their organizations. Not only do they ensure a steady and reliable candidate pipeline, but they also help companies save time and cost on recruitment. Simultaneously, employees get motivated to participate in these programs for attractive rewards while boosting their employers’ brands through positive messaging in their circle. It is a win-win situation, helping companies look beyond traditional candidate sourcing.

If you are looking for reliable and quick ways to source candidates, it’s worth exploring the power of AI hiring tools like Arya by Leoforce. It is a step ahead of conventional hiring tools that rely on just keywords for candidate sourcing; instead, it’s intelligent enough to evaluate the candidate on various skills, culture fit, and historical data to rank them by preference. To see it in action, book a demo today!

FAQs

What is an employee referral program?

An employee referral program is a structured and organized initiative where employees are asked to recommend candidates for open job positions.

Employee referral programs are internal sourcing methods where employees get incentives for referring qualified candidates for various positions.

What is an example of an employee referral?

Many examples of employee referrals include recruitment happy hours, as organized by Salesforce, for instance. This gets employees together with their referrals, and they can all get connected to the organization. Another example could be providing information to questions posed by the organization regarding the best candidates that one knows for any position.

Is employee referral important?

Employee referral is immensely important, enabling companies to build a reliable pipeline of quality candidates while saving sourcing time and money greatly. It encourages employees to recommend quality hires for companies in return for incentives, thereby boosting their morale and the company’s brand value alike. The recruitment procedure is fast-tracked as a result.

How do I get referrals from an employee?

As a recruiter, you can encourage employee referrals by promoting the employee referral program, offering incentives, and making it easy for employees to refer candidates. Additionally, providing clear job descriptions and communicating the hiring needs of the organization can help employees identify potential referrals.

Is it OK to ask for an employee referral?

It is always okay to seek a referral. Recruitment managers usually prioritize those who have referrals. If you effectively seek referrals, it may help you get more opportunities and interviews at your targeted companies.

What is a typical employee referral bonus?

Employee referral bonuses vary across organizations. In most cases, cash values of bonuses hover between $250 for entry-level jobs to a whopping $25,000 for executive-level positions. Average bonuses usually hover between $1,000-5,000.

References

[1] https://www.zippia.com/advice/employee-referral-statistics

[2] https://business.linkedin.com/content/dam/me/business/en-us/talent-solutions/resources/pdfs/new_employee_referral_programs_FINAL.pdf

[3] https://www.achievers.com/resources