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What are employee referrals?

Why is there a recruiter in every employee? Why are referred candidates often better? Can an employee referral programme also harm the company? And when is a referral successful? We have the answers.

Employee referrals are...

an essential recruitment strategy by which an employer can tap into new applicant groups, increase its reach via the social networks of its employees and speed up the hiring process. Existing employees are encouraged to get involved in recruitment by recruiting new employees from their own private spheres. They can share details of open positions and company job ads in their personal networks or recommend suitable contacts from business networks such as LinkedIn or Xing to the recruiter. As a rule, employee referral programmes also include incentives in the form of referral bonuses or rewards for a successful new hire.

Employee referrals: How does it work?

Employee referrals are basically an employees-recruit-employees programme with clear parallels to classic referral marketing, except that it is not about satisfied customers recommending selected products, but satisfied employees recommending a job with their employer. Referrals can come about in several ways:

  1. The employee shares a job advertisement to a friend, relative or acquaintance, who they consider would make a suitable candidate. Ideally, this person then applies for the vacancy.
  2. The employee shares details of the company’s job postings in their personal networks without addressing specific people. This can be both social media networks or private groups, for example, a sports club or other organisation. Ideally, one or more people subsequently apply for the vacancy.
  3. The employee recommends a potential applicant to the HR department. They then get in touch with the candidate, who ideally proves to be a suitably qualified candidate and enters the application process.
  4. Employees should also be encouraged to make recommendations irrespective of any vacancies, if they are convinced that candidates are a good fit for the company. Even if there is currently no suitable vacancy for them, their professional skills may be of interest at a later date.
  5. Employee referrals work as a channel both online and offline. Job openings can be shared in every conceivable way - by word of mouth or in writing, by email, WhatsApp, as a printout or link to a career site. Companies can support the willingness of their employees to make referrals by, for example, by providing content optimised for social media that can be shared with just a few clicks. This can be job postings, as well as company insights or interviews with departmental heads etc.

Why do existing employees act as referrers?

Recruiting new employees is something difficult for employers to insist on. Any employee referral programme is therefore always on a voluntary basis, otherwise the quality of the such referrals would deteriorate rapidly. However, an employer can certainly create incentives to motive employees to participate in the programme. Classic incentives are, for example, reward schemes by which the referrer collects points according to the activity and can redeem these for a cash or non-cash reward. But additional holidays or team incentives can also be good motivators. In addition, the gamification approach has proven to be an effective tool for maintaining employee engagement and interest in the referral programme.

Employer Branding

Rewards or gamification - the basis for a successful employee referral programme is the employer brand. If employees identify with their employer in line with employer branding, share its values and appreciate the company culture, in short; if they enjoy working for the company, they will also act as brand ambassadors out of personal conviction and recommend their employer. An employee referral programme goes hand in hand with a healthy working atmosphere and a strong employer brand.

When is a referral successful?

In relation to creating incentives, the question of when a referral shows the desired recruitment success, i.e. is worthy of a reward, must of course be clarified. This needs careful handling. Because if the referred candidates have to first start their new job, or even pass the probationary period, in order for the referrer to be rewarded, interest in the programme will quickly wane. The chances of the individual receiving a reward are then too low. If, on the other hand, rewards are too generous, this can result in employees making excessive referrals, without thinking about it first, in order to collect rewards. This is where a points system that can be finely tuned proves effective. Simple activities are rewarded instantly, but only through steady commitment can sufficient points be collected for larger rewards.

Benefits of an employee referral programme

More and more companies are relying on the support of their own employees in recruitment and are implementing employee referral programmes. Compared to the classic publishing of job advertisements or hiring a headhunter, this recruitment channel has some clear benefits:

#1 Shorter recruitment times and reduced costs

If the company’s own employees serve promising candidates on a silver platter, the company saves itself a lengthy search in various channels, speeding up the recruitment process. In this way, the time to hire can be significantly shortened. It also reduces the cost per hire. The work for HR decreases and neither expensive HR consultants need to be appointed nor job advertisements paid for.

#2 Greater reach

A major benefit of employee referrals is the greater reach that the employer achieves via their employees’ social networks. The talent pool can be enhanced with several hundred candidates per referrer. This way, the company also reaches high-quality candidates who are not currently looking for a new job.

#3 Better cultural fit

As a rule, referred employees are a very good fit for the company because recommendations are generally only made if the referrer considers the candidate meets the job requirements and is also a good fit for the company. The referring employee therefore already carries out a preselection in terms of cultural fit.

#4 Quicker onboarding

Their high suitability and existing social contacts within the company makes the induction phase easier for new employees. The onboarding process is quicker and the referred candidate is productive within a shorter period of time.

#5 Improved employee retention

Studies show: employees recruited through an employee referral are more loyal to the company. But it is not only referred employees that demonstrate better retention rates: current employees acting as referrers and ambassadors also have a lower turnover rate.

#6 Greater credibility

Employee referrals have proved particularly successful with younger applicant groups (Gen Z & Gen Y) because they are authentic and offer a reliable insight to the company. Brand ambassadors are able to promote the employer brand in a credibly way thanks to their own personal experience. For many potential candidates, this is more convincing than the embellished content of a job posting.

Risks that employee referral programmes carry

Referrals from colleagues often have the disadvantage of damaging diversity in the company in the long run. Because, as a rule, employees recommend candidates from their own networks who are similar to themselves, for example, in terms of education, lifestyle or hobbies. For companies with a homogeneous workforce structure, the path to greater diversity is therefore much more difficult than for employers who - to put it bluntly - already employ a motley crew. According to the laws of cultural fit, employees usually recommend candidates who are similar to themselves. In a company with a diverse workforce, this diversity will also be reflected in the referrals and thus has a long-term effect on the personnel structure. Conversely, this means that in companies with little diversity, referral programmes tend to reinforce the status quo, rather than counteract it. True to the motto: ”Birds of a feather flock together”. In the long run, this lack of diversity can threaten innovation in the company and hinder opportunities for growth.

Companies should therefore not rely solely on an employee referral programme, but promote a balanced recruitment mix that, for example, includes talent sourcing and social recruitment initiatives.

Digital employee referral programmes

Digital referral programs are cloud-based recruitment solutions for employee referrals and employer branding. They support recruiters above all through sensible process automation and ongoing marketing of the programme, so that it remains present in their employees’ minds. Useful analytics and metrics for measuring success increase efficiency in recruitment, as does the system’s interaction with each relevant social media platform, as well a direct interface to the applicant tracking system and talent pool.

Mobile access for employees

For referring employees, intuitive usability and mobile access are decisive factors. Because employees are not always at their desks in front of a PC with access to job boards, social media posts, the rewards shop or important internal news. Sales staff and blue collar workers, for example, are mainly reachable via their smartphones. For them, a reliable mobile app is a prerequisite for acting as a company ambassador or participating in the referral programme.

Safe and manageable rewards system

Rewards are the icing on the cake. Especially if intermediate goals, such as sharing details of open jobs or recommending candidates, can also be rewarded via a points system. However, many employers fear the misuse of the gamification programme by a few bad apples among their employees - and a subsequent explosion in costs due to an uncontrolled redemption of rewards. Here it is advisable to rely on systems with an automatic control mechanism such as a fraud prevention function that also offer the possibility of setting individual point limits. A controllable rewards system ensures full cost control at all times and prevents misuse.

Is an employee referral programme worthwhile?

Most employers are now aware of the benefits of an effective employee referral programme. Surveys show them to already be the best source of recruitment in 50 percent of companies. However, employee referrals should be just one part of a healthy recruitment mix, designed to expand the talent pool in a diverse way and to ensure diversity within the company. With a digital employee referral program companies can realise the full potential of their referral programme. It makes recruitment more efficient through automated processes and smart analytics. Transparent, easy communication via the system, an integrated rewards shop and an intuitive mobile app motivate employees to act as referrers and ambassadors for the employer brand.

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