The Headhunter Within - employee recruitment

HR Magazine, August, 2001 by Michelle Neely Martinez

Turn your employees into recruiters with a high-impact referral program.

Hiring top-notch individuals at a low cost-per-hire rate is a recruiter's dream. Today, many employers are turning that dream into reality by revamping tired employee referral (ER) programs or creating new ones from scratch.

For AmeriCredit, based in Fort Worth, Texas, employee referrals have been the source of 45 percent of hires since the company kicked off its "You've Got Friends, We Want To Meet Them" ER program last March. "We wanted to create a centralized approach to building a more qualified applicant pool," says Collier Albright, assistant vice president of recruiting.

The new program also brought a bonus--a decrease in turnover of more than 50 percent. "Although there were other factors at work, we attribute the huge reduction in turnover to the employee referral program," Albright explains. "Quality people know quality people. If you give employees the opportunity to make referrals, they automatically suggest high-caliber people because they are stakeholders in the company."

Lisa Kaminski, director of human resources at Digineer Inc., a 120-employee software development company in Mason, Ohio, agrees.

"There's definitely a stronger sense of ownership when employees refer candidates," she says. "Employees won't refer someone they can't depend on." Last year, half of the company's hires came from its ER program.

At Hartford, Conn.-based Lincoln Financial, the ER program is responsible for 55 percent of external hires. "The program brings in quality candidates, and, by using it, we feel we are acquiring a known commodity," says Lincoln's staffing director Merryl Rees. "In the last six months, we've filled five senior-level positions through the program.

If a search firm had been used, the standard 30 percent charge of the first year of salary would have cost Lincoln $150,000 in recruiting fees (30 percent of five salaries at $100,000 each). Instead, the company paid a total of $5,000 in the five $1,000 awards to the employees who made the referrals.

Survey data also emphasize the high value of ER programs. Cost-effectiveness was a primary benefit of implementing an ER program for 80 percent of respondents to the 2001 Employee Referral Program Survey conducted by the Society for Human Resource Management (SHRM) and Referral Networks. The survey reports that, on average, each exempt hire made through an ER program costs an organization about $800; each nonexempt hire costs approximately $333.

Finding the Funds

Whether you want to improve an existing ER program or start a new one, Kerri Koss Morehart, director of recruiting for SRA International, a government contractor based in Fairfax, Va., suggests you begin by answering the following questions:

* How much money is spent now for recruiting overall?

* Could you reduce some cost areas and improve the quality of hires?

* Are you using outside agencies instead of your own "inside agency"?

* How many hires would you like to get from the ER program?

* What cost-per-hire numbers would you like to hit in your overall recruiting program?

* What types of metrics will be used to measure the impact of ER?

* How will you track ER program costs vs. return on investment?

The answers will help you build a budget or reallocate money in the existing budget for the ER program, explains Morehart, who revamped SRA's program several years ago. Today, half of SRA employees are recruited via employee referrals.

When Morehart was building a case to spruce up SRA's program, she listed the number of employees who came from referrals along with their performance rating. The numbers spoke for themselves, she says, "because the performance of these employees' ranked highest in the company." Measuring referral impact is critical, says Morehart. "If you don't know how you are doing, you can't fix anything, make things better or illustrate value."

To keep the program in front of management and employees, Morehart issues a weekly e-mail report, which features information on resume flow, interviews conducted and individuals hired. "When listing individuals who were hired, I make a notation beside the name of those who came from referrals," she says. This small gesture makes "a big impact," she says. "It really brings home to them how the employee referral program makes a difference each day."

Structuring Incentives and Rewards

Cash is the most popular award given to employees who refer hired individuals, although the amount of cash varies, according to the SHRM/Referral Networks survey.

Some employers base the cash payout on the type of position being filled. For example, SRA awards $500 for administrative staff hires, $800 for entry-level professional hires, $1,000 for managerial hires and $2,000 for hard-to-fill highly specialized positions. AmeriCredit and Digineer pay a flat fee of $1,000 for any position filled via the ER program.

The SHRM/Referral Networks survey reports that for exempt positions, the most frequently indicated reward, given by 32 percent of the respondents, was between $500 and $1,000; 29 percent of respondents award less than $500 for referrals to exempt positions. For nonexempt jobs, 42 percent of responding employers pay less than $500; 36 percent award amounts between $500 and $1,000.