Referral recruitment - the most effective way of recruitment and how you can improve it

“Let’s just say I know a guy…who knows a guy…who knows another guy.” – Saul Goodman

Can you fathom what might have happened if Saul Goodman hadn’t said these words on the hit TV series “Breaking Bad”? While it might have saved us some tears at the season finale, it got the protagonist Walter White in touch with Tuco Salamanca, and without spilling any spoiler beans, we can safely say that it took the show to a whole new level.

In the corporate world – referral recruitment is the equivalent of that.  

But what exactly is referral recruitment? Simply put, it is a strategy where current employees of a company are encouraged to refer contacts for vacant positions within the company. It is a tactic where companies empower employees to become brand advocates and through word-of-mouth attract top talent from their peer networks to work for the company.

This is not a new concept – referral programs have existed since the time of Julius Caesar’s rule in 55 B.C, who apparently offered 300 sestertii to any soldier recruiting another into the Roman army. The amount was far from measly as it amounted to almost one-third of a soldier’s annual pay.

Fast forward many centuries later, companies continue to harness the power of referral recruitment to get high-potential candidates to work for them. In this article, we will explore how referral recruitment is better than most other recruitment methods and ways in which companies can make it more efficient.

Benefits of using referral recruitment

Higher retention of employees

Retention is a top concern for talent leaders all over the world. Referrals are the perfect vessels with which to wade the murky waters of talent acquisition and retention. This is because the turnover rate of referred employees is found to be lesser than non-referred employees who are hired through other recruitment mediums. Research shows that 56% of referred employees stay for over five years in their current position, and over 70% stayed in the same position as the time of hire, which indicates higher job satisfaction.

Higher employee productivity

A study by Stanford found that referred employees have higher productivity compared to employees hired through alternative channels. They were also found to have better company fitment, which is a top priority for employers, as the referred candidates are aware of the company culture and working conditions at the time of joining the company.

Costs a fraction of other recruitment methods

When your employees recruit top talent for you, you cut your talent acquisition costs significantly. You save on advertising costs for job boards, the cost of hiring an RPO or a staffing agency, recruitment drives, and more. The financial incentive that you pay employees when a referral gets hired is only a fraction of other recruitment costs.

Leads to higher innovation

Yes, you read it right — referrals were found to boost innovation according to the study titled “You’d be perfect for this: Understanding the Value of Hiring Through Referrals.” The social synergy at a workplace where employees have more friends leads to more innovative ideas compared to a workplace with fewer referrals.  

Saves time

Referrals skip the Awareness and Consideration stages of the recruiting funnel (depicted below) and skip straight to the Selection or Interview stage. This cuts a big chunk of the total time taken to hire the candidate. The larger the percentage of your workforce you hire through referrals, the more time you save on recruitment.

Image Source: Glassdoor.com

Is it as good as it sounds?

In a word, yes! But it’s slightly more complex and involves examining areas that need to be enhanced to get the full benefit of employing referral programs.

Incentive structure for referring candidates

The report by ICIMS titled “The impact of successful employee referral programs” shows that out of a whole range of program characteristics, one of the top areas of improvement in companies included an appropriate incentive structure for referring candidates.

Caesar understood the importance of incentivizing the process back in his time. But things have changed since then. Money is no longer the chief motivator for employees to refer their peers; their motivations are more altruistic in nature. The biggest incentive for employees is helping their friends followed by helping the company (as seen in the image below). The incentive structure of a company should account for these intentions. While employees might appreciate small monetary perks, recognition from the company and the team for their contributions are far more likely to appeal to them and will encourage them to continue referring more talent.

Image Source:  Linkedin.com

Educating employees on the positive impact of referrals

Employers assume that employees understand the importance of referrals, however, that might not be the case. It is important to let employees know the positive impact of referrals and highlight any specific contributions and recognize their efforts by giving first-hand examples from the team. A great way to do this is to set reminders to discuss any examples or reinforce the positive impact of referrals in team meetings or during one-on-one sessions. Referrals must be proactively encouraged from employees to attract passive top talent in their networks who might not be looking to switch roles or jobs.

Leveraging technology to support the referral process

While companies recognize the importance of tracking via technology, this is an area where they are severely debilitated according to the ICIMS report. Companies need to invest in applicant tracking systems (ATS) with a built-in employee referral program that keeps tabs on the hiring process. These systems also track the financial incentives paid to employees when referrals become new hires. To get true ROI from this technology, consider investing in one that also gathers important statistics, such as the tenure of new hires within the company.

Some companies are also implementing out-of-the-box solutions to track the referral process better. Dropbox, for instance, built an app where employees can enter their referral into the system and can track the various stages of the hiring process using the app.

Integrate with marketing

The report by LinkedIn titled Global Recruiting Trends 2016 showed how talent acquisition needs to partner with marketing to get brand excellence. This will help increase awareness and educate employees and passive candidates about the company culture and brand.

Timely communication with the referral

The biggest reason for referrals not converting to hires is “untimely communication.” While passive candidates might not mind waiting for an organization to tell them of their progress, candidates who are actively looking for opportunities have a higher chance of accepting competing offers and prefer a company that keeps them informed on their application status. Timely communication at every stage of the hiring process is key to retaining the interest of referrals.

Ensure the talent pool is diverse

According to LinkedIn’s report on Global Recruiting Trends 2017, recruiting more diverse candidates is one of the top three important trends that will define the future of global recruiting. When it comes to referral recruiting, companies must be careful not to recruit a homogenous workforce as there is a chance that people would refer others who are most like them. So, companies that don't have a diverse workforce, to begin with, might not have a diverse employee referral pipeline and might end up with a more standardized workforce.

Old but not obsolete

Referral recruitment has not lost its luster in the recruiting world as almost 48% of the world’s talent leaders get quality hires using employee referrals, as per LinkedIn’s report on Global Recruiting Trends 2017. In India, at least 65 percent of recruiters are reported to be using employee referral programs to attract quality talent. This is a trend which might have started centuries earlier but is here to stay as 26% of employers considered employee referral programs to be a long-lasting trend. To provide true ROI though, employers must ensure that they have a robust system in place to educate and empower employees and a system to track the referral process while striving to make the process more transparent and convenient for them.

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About the Author

Arpit Mishra
Avid book reading advocate. Hardcore travel nerd. Technology freak. Follow me on LinkedIn to get more Insights on Tech Recruitment.
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