Employee referral schemes

Title: Employee referral scheme: Is it time to evolve?

Employee referral schemes have been around for years. But are they actually effective? Do they do what you need them to do – deliver quality applicants in a timely manner while increasing retention rates? Or could you be spending that money more wisely?

Whether you recruit internally, outsource to one provider or an agency PSL, business leaders in HR and Recruitment are normally held to account for two key metrics: cost per hire and time to hire. With this in mind, it is easy to see why traditional employee referral schemes are highly regarded and widely used as they offer the potential to save time, money and energy. Recruiters have been using employee referral schemes since Roman times – and that’s not an exaggeration. Caesar grew his army by offering 300 sestertii, a third of a soldier’s annual pay, for bringing someone else along to join, so with that in mind, is it time for a change?

The big bucks

Today, you’re unlikely to offer employees a third of their annual salary for an employee referral, but with many places offering an incentive anywhere between ￡500 and ￡5000 for a referral, some companies are paying out hundreds of thousands of pounds to employees through internal referral schemes each year. The question is, do they actually work? Google’s hiring chief Laszlo Bock wrote in his recent book that financial incentives didn’t do it for them – when the company tried doubling its referral bonus from $2,000 to $4,000, it didn’t help at all. In most cases, happy employees want to refer – and they would do so without any financial incentive. Some possible reasons they don’t are that they have to refer to a specific role, the process is complicated or they are worried about how their friend/colleague may find the experience, particularly if it was for a future potential vacancy. Does your current technology platform allow for you to match thousands of contacts (referral talent pool) to current and future job openings easily?

What about you?

With such huge figures being thrown about, it would make sense to analyse the process and track the ROI for employee referrals – no other area of a business could get away with spend like this without serious scrutiny – but how many businesses are actually tracking these schemes? Without some form of tracking, we are unable to know whether this process is a good way to spend on recruitment or not. You might be saving on agency fees, but there could be other places to invest that money to create higher attraction and retention rate. Could you potentially retain more staff through better benefits, or more flexible working? Would that be a better investment for the company – and make it a more desirable place to work?

Scheme mismanagement

Let’s look at a referral scheme in its simplest instance; you ask current colleagues to refer people to live vacancies and roles, should they be successful, they get the job, and after a set period of time you pay out a referral bonus. But what do you do with the candidate if they don’t get the role? How do you manage their candidate experience and journey? What if they finished second in the process – can you separate these silver medallists? What about if your company is in growth mode and your staff know people who may be the hires of the future? Think about digital marketing; a few years ago, our digital and UX teams were much smaller than they are now – imagine if you had been a little bit ahead of the curve, could you have saved a significant amount of money in fees, advertising and attraction? These are the questions that you need to ask yourself if you’re going to continue with a referral scheme. There is a world of talent out there and it gets more competitive to hire good people every day. Are you doing everything you can to maximise the lead time you have on these exclusive, passive candidates?

Time to evolve?

In my mind, this is one area where we’re very much doing exactly what we’ve done for years. We’ve moved on with sourcing, attraction, brand, payroll management – so why haven’t referral schemes evolved, too? At the very least, it is time to question to status quo, put employee referral schemes to the test and see whether they are worth the investment.

I’m not saying I have the answer, and employees certainly need to be able to refer talent they know will make a positive impact to the business they love. But the key questions remain – are we making it easy to refer, are we managing this data base of talent correctly and do we know what we’re getting for our money?

What do you think? Should we be challenging the employee referral scheme convention? Have you challenged this in your business? Or should we trust the likes of Caesar, and leave this age-old tradition alone?

I’d love to hear your views on the value of employee referral schemes, please get in touch with me at [email protected] or comment below.