How to Create a Referral Program that Boosts Retention and Rewards Employees

In sales, your most qualified leads usually come as referrals from satisfied customers.

In recruiting, a referral from one of your satisfied employees can be just as powerful.

Employee referrals bring qualified talent to the table and cultivate a sense of company loyalty in both the referring and prospective employee.

In addition, referred employees tend to stay with their employers longer than those who are hired using traditional recruiting strategies.

A recent study found that 46 percent of employee referrals stay for three years or more, while only 14 percent of those hired from job boards stayed, according to a Jobvite report.

An employee referral program can also significantly increase your company’s qualified talent pool. Most of the time, the referrers (your current employees) have a good understanding of what you expect. Therefore, the candidates they refer are more likely to have the skills and personality you’re looking for. This can speed up the initial screening process so that you can hire qualified talent quicker.

In fact, referred candidates are hired 55 percent faster than those who came through a career website (Jobvite Index).

Now let’s explore how to encourage participation with incentives and launch a successful referral program.

Motivating Employees: Cash Incentives Alternatives

Cash rewards are an effective and popular method for motivating employees to participate in referral programs.

The amount should be fair and buzz-worthy, according to your industry, company size and culture. You may want to offer bigger rewards for harder-to-fill roles. Also consider incentivizing referral quality and retention by giving a second award after a newly hired referral has worked 90 or 180 days.

But sometimes cash incentives just aren’t in the budget. These low-cost alternatives can also get your employees excited about making referrals:

  • Lunch If you regularly take new hires to lunch, include the employee who referred them on the invitation.
  • PTO Give employees who make referrals an extra day of PTO when a recommendation is hired.
  • Recognition Openly recognize employees who have suggested a great candidate. You could do this with a thank you note, reserved parking space, or announcement and thank you at a department or company meeting.
  • LotteryInstead of giving an individual reward for every hired referral, you could do a drawing for one big prize every quarter out of all the employees who participate.

Launch Your Program

When you’re ready to establish an employee referral program, you can take one of two approaches: the year-round program or seasonal campaign approach. The program can be year-round or sporadic to address the ebbs and flows of your business.

A year-round employee referral program would be best if you would like to accept and incentivize referrals at all times.

A seasonal employee referral campaign might suit you better if you do most of your hiring in certain months of the year, or if you’re working with a tight budget.

Another point to consider is whether you need referrals for all openings at your company, or just those that are typically difficult to fill. By only incentivizing referrals for your hard-to-fill positions, you avoid paying employees for referring candidates for positions that already have a large pool of qualified, available talent.

Whichever way you want to configure your program, the setup is mostly the same. You’ll need to:

  • Put the program design in writing
This should cover incentive-eligible positions and time periods, how employees can make referrals, how those referrals are processed, how hiring decisions should be shared with employees who make recommendations and what the awards are when a referral is hired.
  • Ensure you have a way to track referrals
If you have an applicant tracking system, you can likely take advantage of its referral features. If not, some creativity is required. Smaller employers may use a spreadsheet or perhaps an email account that tracks all submissions with a time stamp.
Regardless of what system you implement, create a central location for tracking referrals. This will help you assess the results of the program and keep a clean record of which employee made the referral.
  • Consider how you’ll “market” the program to your employees
Do you need an internal webpage that explains the program and accepts online referrals? How else are your employees going to know the program exists? Email is always good for getting the word out, but don’t get stuck in a rut.
Get creative, and your employees will not only remember the program, but look forward to hearing about it (and the incentives, of course). Try mass voicemails, posters, an internal job fair event or a video.
When a new position becomes open, send messages out with a link to the job posting and a reminder about the referral program.

Pitfalls to avoid

When designing your program, consider these pitfalls and how you’ll avoid them.

  • Responding too slowly
When employees refer candidates, the hiring manager should follow up quickly. It can hurt your company’s credibility and employment brand if your actions don’t show gratitude and responsiveness throughout the process. Not getting back shows a lack of respect for your employees and their contacts.
  • Failing to follow up
No matter the hiring outcome, you need to communicate decisions to candidates as well as the employees who referred them as soon as it’s feasible. According to CareerBuilder survey data, employees regularly report frustration due to lack of follow-up on the status of their referrals. This can lessen the chance they’ll refer another candidate, and the negative experience can make them feel as if their opinion is not valued, in turn damaging morale.
  • Hiring based on relationship alone
Not all referrals will have the skills or experience you need. With every interview, screen first and foremost based on the needs of the department and the organization. In other words, screen for the best skills, and avoid hiring based on friendships alone, as this could negatively affect the department.

An employee referral program may very well be the shortest path to better hires. For more suggestions on how to build a solid recruiting infrastructure, download our free guide – Talent Acquisition: 13 Secrets to Recruiting and Retaining Top Talent.