Employee Referral Programs

By Emma Hickey

Good people know good people. This is the principle behind employee referral programs, which incentivize your team to refer people from their network to open roles at your company. There are a lot of benefits to an employee referral program. According to RecruiterBox, referred employees have higher retention rates and increased employee engagement than employees who weren’t referrals. They’re also quicker to hire, more likely to be good cultural fits, and less likely to leave. Though many referral programs offer a cash reward to employees whose referrals were hired, the best referral programs reward employees not just at the end but also at the beginning of the referral process. A well-constructed referral program adds an influx of quality candidates to your recruiting pipeline, but as with anything there are also risks, specifically the risk of creating a homogenous workforce filled with people from similar backgrounds. Let’s take a look at how to build a successful employee referral program, examples of other companies succeeding in this area, and how to safeguard against some of the negative effects of an employee referral program.

Employee referral programs have the ability to turn all your employees into recruiters through the promise that—if their referral is hired and stays with the company for a certain amount of time—they’ll receive a referral bonus. One thousand dollars and $2,000 are the most common bonus amounts and three months to six months is the most common time frame to wait before paying it out. This is the most simple structure for an employee referral bonus program, and while it can be effective, it wastes the opportunity to reward employees for referring their friends regardless of whether or not that friend is hired. Think about it—not every candidate referred by a current employee is going to be hired, but you don’t want that possibility to deter your team from referring their network to the job. You want high quality referrals, of course, but it’s also to your benefit to have a high volume of referrals. The best way to ensure this is by incentivizing referrals whether or not they’re not hired.  

The most powerful referral programs reward employees when a candidate applies to the role, and then again if/when the candidate is hired. The initial referral reward should be something small. Some organizations hold internal referral raffles, where everyone who refers a candidate is entered into a raffle for a prize. Other organizations give out points per referral that are redeemable when they hit a certain number. Other organizations keep it simple and give a Starbucks gift card for each referral. It doesn’t matter what the reward is, as long as the initial act of referring a candidate who applies for the role is rewarded. Then, hopefully, you can give a big referral bonus too when that candidate is hired.

One of the most innovative employee referral programs out there is that of Fiverr, a digital marketplace for freelance business services. Fiverr uses a third party platform to gamify their program. They track and award points for sharing job postings on social media, and they give their employees points for everyone they refer who applies to the roles, and for everyone who is hired. They also maintain a leaderboard that displays the top 5 points earners, which motivates other employees to refer their networks, too. Google also has a really effective referral program—they give their employees trips to Hawaii rather than cash bonuses. Not all companies have the resources of Google, but the take away from their program is that the referral bonus should be uniquely appealing to your employees. Sure, cash bonuses might work for most groups, but there’s always a chance you could find a reward better suited to your team. Distillery, the full service software design and development company, found that their team responded much better to Apple watches and other gadgets rather than cash. It’s all about incentivizing your team with whatever works best for them!

Though employee referral programs offer a lot of great benefits, there’s one clear negative—they can lead to a homogeneous workforce. Imagine this: Your CEO is a straight, white man who grew up in an affluent town and attended an Ivy League University. In both environments, he was likely surrounded by people similar to him and that’s who he befriended. Then, when he started his company, he wanted to work with people he knew and trusted, so he reached out to his network to find his team. Then those people reached out to their networks, and so and so on until the entire company was filled with straight white men from affluent towns who went to prestigious universities. There are so many other perspectives and voices out there that could thrive at his company, but they were never even considered for the role, simply by nature of not being a part of a specific social circle. Obviously, this is an extreme example, but without careful monitoring, this is the type of environment an employee referral program can create. In order to safeguard against this, it’s important to have a strong Diversity and Inclusion program in place.

Every company can benefit from a thoughtful employee referral bonus program. It’s a great way to create a pool of candidates and find future employees who will fit in well at your organization. It’s also a great way to reward your team for championing your company to their friends, family, peers, and acquaintances. As long as you have a diversity and inclusion program in place, or at the very least are mindful of the fact that employee referral programs can have a negative effect on team diversity and work to prevent this, these kinds of programs can help create a dynamic and successful team.

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