Employee referral programs in 5 steps: Part 1
In this report we decided to compile and structure all available information about employee referral programs.
Business Impacts of Referral Programs
Great quality of candidates
· Produce employees who are 20-30% more productive on the job.
MIT Sloan School of Management Professor Emilio J. Castilla discovered that employees recruited through employee referral programs can have significant performance differentials from employees who were sourced via other channels. While Professor Castilla’s research focused on a single call center, his findings are similar to those of a growing list of companies including FirstMerit Bank, Tenet Healthcare, and Allstate, to name a few. In 2006, Booz Allen Hamilton surveyed 73 major employers, and 88% found that hires made via employee referral performed better on the job than candidates hired via other sources as measured by their companies’ performance appraisal systems. According to Dr. John Sullivan the minimum and maximum observed data points between employee referral program hires for employees meeting minimum productivity by end of probation period is 92-100% compared with 74% for hires by all other sources.
· Produce employees who have 2x higher retention rates.
Professor Castilla also noted that employees who were recruited via employee referral programs also stayed longer than employees recruited through other sources, providing the employee who referred them did not separate. This is a trend that many corporate program managers have also noticed in such companies as SRA International, PricewaterhouseCoopers, Allstate, Texas Instruments, and Southwest Airlines. According to Dr. John Sullivan employee referral program hires results in 9-21% voluntary turnover in 3 years compared with 39% for hires by all other sources.
· Produce 15-30x less non-qualified applicants.
Baptist Healthcare and Allstate have both found that referrals produce a lower percentage of “non-qualified” applicants, a characteristic that reduces the screening delay inherent in most recruiting systems and enables recruiters to focus on getting the right candidates in front of the right managers in the shortest possible time. According to Dr. John Sullivan employee referral program hires results in 22-58% of applicants that meet job requirements compared less than 2% for hires by all other sources.
Lower costs
· Reduce the burden on recruiting departments.
It is not uncommon for managed referral programs to produce more than 50 percent of an organization’s total new hires. Because managed programs focus on tuning the program to produce only qualified applicants, a great deal of the labor that the recruiting department would usually expend screening and sorting applicants is eliminated.
· Produce a high ROI (>500%).
In making the business case for implementing an employee referral program, Dr. John Sullivan discovered that the ROI for an employee referral program could be well over 500 percent if the performance differential could be quantified and included. Obtaining that level of ROI did not include branding value (employees talking positively to strangers about the firm and its products). The vice president of marketing of Agilent said that the value of employees talking up the company to friends, colleagues, and family to a company the size of Agilent could top $100 million. Such a return would have produced an ROI in excess of 3,000 percent.
Greater speed and satisfaction
· Produce hires more quickly than alternate sources.
Employee referral programs when managed properly produce candidates that are, for the most part, prescreened for “culture” and skills fit by the employee. In organizations that tag applicants with source of hire, the impact of this characteristic is telling. Such applicants require less rigorous formal screening and therefore advance through recruitment processes much more quickly than candidates from other sources. European communications giant Vodafone found that by focusing recruiting activities on employment brand management and employee referral, the average recruiting cycle time per position could be reduced by more than two-thirds.
· Increase manager satisfaction with the recruiting department.
Because employee referrals prove more reliable and productive, management satisfaction with the recruiting department tends to increase as the percentage of requisitions filled via referral programs increase. Managers are generally highly satisfied with requisitions filled through the referral program. This trend has been noticed by Nationwide Insurance and CMP Media.
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