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Employee Referrals and your Talent Acquisition Strategy

Employee Referrals and your Talent Acquisition Strategy

By: John Rossheim 

For cost-conscious companies recruiting in a buyer’s labor market, the allure of employee referrals is multi-faceted: they’re a high-yield source of qualified candidates who are more likely than average to fit the company’s culture.

And the main expense for employee referral programs (ERPs) is the cash incentive for referring employees -- a cost that can be much lower than a recruiter’s commission.

Still, employee referrals -- as a bottom-up, crowdsourcing approach -- do not constitute a total candidate sourcing solution. Let’s take a look at how employee referrals fit into the big picture of talent acquisition.

The relationship’s the thing -- The quality of the personal connection to the candidate may be the top selling point for employee referrals. "Everything we do is relationship-based," says Chris Carlson, a senior manager in People Services at consulting firm Booz Allen Hamilton. "Who would know better than our employees who we should hire? Indeed, more than 55 percent of Booz Allen's new hires are sourced from the 1,700 employee referrals the firm receives in an average month.

ERP is just one aspect of sourcing process -- Even when firms are very bullish on their ERPs, they don’t view it as their exclusive sourcing solution. "Every time a position opens, the ERP is only a component of it," says Carlson. "An actual recruiter will own the requisition and will look at all possible sourcing channels, to provide diverse and diversely sourced candidates."

An effective ERP is high-touch -- In the 2010s, employers with the most effective referral programs must continue to invest in them with both infrastructure and personalized communications. Booz Allen, for example, personally acknowledges both the referring employee and the referred potential candidate with 48 hours, often with a phone call. A dedicated internal ERP web portal serves as the center of employee referral activity.

Efficacy of employee referrals depends on position -- Some positions are much more likely than others to be filled by candidates sourced by employee referral. Companies find that employee referrals of sales representatives, for example, are frequently converted to hires. But filling a requisition for a very specialized software engineer may require postings on job boards or the services of a headhunter.

When the talent need is urgent -- Employee referrals enjoy a reputation of fast time-to-hire, but only if the right people emerge organically. "Time is of the essence, so if we don’t have an employee referral when we need it, we'll actively source by a number of other possible channels," says Deborah Hankin, head of talent management at marketing communications firm G2 USA in New York City.

Both referrals and sophisticated search can source a few good candidates -- With chronic high unemployment, many companies have grown weary of the mountains of resumes they receive every month. By comparison, fielding much smaller numbers of employee referrals may seem a more reasonable approach.

But in recent years, the semantic search capabilities of resume databases have advanced by leaps and bounds, enabling recruiters to more easily find those few shining candidates among thousands. So both employee sourcing approaches are practical; in many cases, both are necessary for the recruitment of optimal hires.

Sourcing to satisfy hiring managers -- "Employee referrals don't necessarily save time or avoid the involvement of recruiters or agencies, because hiring managers want to see a full slate of candidates," says Steve Lopez, director of consulting services at Manpower Inc. in Dallas. A couple of internal referrals -- even good ones -- won’t by themselves fill that bill.

Can there be too many employee referrals? -- One ongoing debate over employee referrals is whether such a program, if it dominates a company’s sourcing, will bring on unhealthy heterogeneity. "There is such as a thing as too much of a good thing,” says Lopez. “We’ll ask the question of what the balance should be. Diversity of thought and background and experience are important."

The hiring of new blood that is unaffiliated with the professional networks of incumbent employees may indeed be crucial to a company’s capacity for innovation.

Integrating employee referrals with agency services -- Recognizing the power and value of employee referrals, many recruiters and agencies are working with customers to create cost-effective, multi-channel sourcing solutions. "Sometimes a client will have their own ERP, and we'll fit our program and pricing around that," says Lopez.

Cost of employee referrals is moderate -- The relatively modest cost of employee referrals has made them popular with many employers "If we use an external recruiter for a $100,000 job, we would pay the recruiter $20,000," says Hankin. That's a lot more than G2's $3,000 incentive for a successful employee referral. "But posting to job sites alone would be the least expensive.”

Keep in mind that an employer’s analysis of ERP costs should include not only the reward paid to employees but also program expenses such as communications with referring employees and tracking of referrals from multiple sourcing channels.

Read more about talent acquisition trends:

Related Monster recruitment solutions:

  • Power Resume Search: Match people with jobs faster than ever before.
  • SeeMoreTM: The world's first semantic search and analytics platform