How your Employee Referral Program may be hurting recruiting efforts

Johnny Walker Blue Label. A memorable “thank you” and conversation starter

Employee referral programs

How do companies incentivize employees to participate in Employee Referral Programs? Maybe the question is: What are companies doing to DISCOURAGE employee referrals? If your Employee Referral Program pays out only after an employee referral has been working for 3-6 months or splits the referral bonus, chances are your company is sending the wrong message to the workforce and not getting the referrals you are hoping for.

This topic has been discussed more frequently on the HR message boards in recent months as the market heats up.

Tight markets make recruiting harder

Despite my Nasty tactics, even the company I work for is hurting for candidates. We have several openings. With several outside recruiters working on these in this market, it is still challenging. The market has heated up. It is Sahara Desert Heat.  In the immortal words of Matthew Broderick from Biloxi Blues, “Tarzan couldn’t take this Heat.” It is the same with several of my colleagues at other companies. I just got off the phone with a contracting company. Their contractors are booked 5 months out. No love for the player hater.   

Alternative incentives

To combat this market, we offer incentives if an employee refers someone we hire. You can choose a bottle of blue label, and for those who don’t drink, you can choose the latest version of the iPad. I am about to throw out the new iPhone into the list of choices as that is the new conversation starter on record.  We can even engrave the Apple products with “thanks for the referral from (our company name).” It is a great conversation starter, and this person will likely know other great candidates. I want them to think of ME!

I recently asked the entire company to post a link to our Careers Page on their social graph. We asked everyone to shout out that we would give one of the above “thank you gifts” to the employee. In addition, the person from their social network who refers us to a hired candidate also wins. Why do I care where the referral comes from?

The range of employee referral incentives

Companies say thank you for an employee referral in several ways. For some positions, these range from “nothing” to thousands of dollars in cash in the financial industries. Most tech companies in town are paying in the $250o.00 to $5000.00 range. Pay structures range from:

• no bonus referral at all
• both the new hire and the employee split the bonus
• paid after 6 months of employment

When I hear these things, I cringe. These referrals reinforce that HR does not influence the company or that the company doesn’t value these referrals. Never mind the money saved via a referral fee the company would pay an outside recruiter.

The cost of the alternative

Most outside recruiting agencies bill 20 – 25% of the first year salary and will have no guilt on whether or not that new hire is a genuine asset to the company. I feel very lucky that we work with some amazing outside recruiters. They usually only give us one or two candidates when they search for us. These are usually near-perfect matches that lead to an offer and a long-term hire.

Many recruiters don’t care if an employee works out beyond the first 6 months (the guarantee period). They collect their money within the first 2 weeks of the new hires’ start date. They want to place people.

Send the right message

If you are setting up an Employee Referral Plan (ERP) in your company, treat the person who referred the candidate as if you REALLY appreciate the effort. Reinforce the behavior you want. Asking someone to wait 6 months or “splitting” a bonus sucks.  Tell each person they get “x” instead of “50% of X”. I don’t want “half of a bonus”!!!! “I want my own!”

Most employees do NOT refer a candidate to the company for the referral bonus. They do it because they feel it will help their company, they will help the candidate or both. These are the right reasons. I don’t want to offer a bounty that is so large that it motivates the wrong behaviors. We want to say “thank you” with a token of appreciation. I am confident that whether we offer $500.00 or $1500.00, I will receive the same number of resumes for open positions. I have offered both, and it didn’t make a difference.  Employees either know candidates who would be a good fit for their companies or don’t. 

Random thoughts on the Employee Referral Program

Who would you rather have?

• Suppose your company is willing to spend big bucks on an outside recruiter who HAS NOT worked in your company and does not know the nuance of the culture. In that case, it should be willing to graciously thank an employee who knows the nuance and is putting their name and reputation on a referred candidate.

Pay on day 1

• Make the payment effective on the first day of employment. The candidate went through the interview loop, and the hiring manager had enough confidence in the candidate to make the offer.  Please don’t punish the person who referred them to make them wait. Success will be determined more by the hiring manager and the team surrounding the new hire than by the person who referred them. The two may not even be in the same department or building.

• I do understand that the person who referred them MIGHT be motivated to ensure their success if the payment is paid after 3-6 months, but then what? Do they stop helping with the new hires’ onboarding and acclimation process? Make sure you reward the right behavior, which is bringing in candidates.

Children are taught to say “Thank you”

• Offering Zero, Nothing, Nada as a bounty for a hired candidate is an insult.  Yes, I did say that the employee should make the referral for the right reasons, but the company should say “thank you” in some fashion.  At the least, allow the employee and the new hire to go to dinner and celebrate with a gift certificate to a nice restaurant.  They will bond, and there may be a discussion on “how to be successful.” You will pay that new hire thousands of dollars a year in salary and spend more on training.  Dinner isn’t too much to ask.

• Referral bounties don’t have to come from HR. They can just as easily come from a department budget. Some HR departments are too conservative for any of the above. They only want to give out a gift certificate to the local movie theater. Suggest to your manager that the department fund the bounty for specific hard-to-fill positions.

Just do it

• There are cases where “no bounty” is appropriate. A case can be made if you have more applicants than you know what to do with. Whether you have 50 candidates or zero, 50 openings or just one, I don’t see how a couple of hundred bucks of goodwill on top of an annual salary will make a huge difference for a great candidate.

Design your referral program to reward the specific behavior you want to reinforce.

See you at the after party,

HRNasty

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