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Are Referral Bonuses Effective?

When it comes to referral bonuses, employers have a lot of questions. It makes sense to set up an employee referral program, but if your goal is to expand your talent pool at a low cost, do you really want to spend that much on referral bonuses?

Hiring top talent is a challenging enough. Add retention and turnover to the mix and you’ve got a complicated formula. In 2018, approximately 1 in 4 employees will leave their jobs, yet nearly 75 percent of turnover is preventable.

And employee referral programs really are an effective method of sourcing:

  • Over 50 percent of recruiters rely on employee referrals as their top source of placement.
  • Over 80 percent of employers say that employee referrals generate the highest return on investment.
  • Almost 90 percent of employers say that employee referrals are their top source for hiring above-average talent.
  • Hiring referred employees results in less turnover. Forty-five percent of referred employees stay at their jobs after two years as opposed to only 20 percent from job boards.

While employee referrals prove to be a successful sourcing method for new hires, what good is an employee referral program if employees don't participate?

Answer: No good at all.

When structuring your employee referral program, you need to encourage your employees to refer talent - specifically, to refer outstanding talent that meshes with your company’s culture. This is why employers are so often encouraged to offer bonuses and rewards to your employees for referrals - but, this is also where a lot of hiring managers get stuck. How should you structure your bonus program so that you're adding the most value to your talent pool?

Let's dig into some common questions around referral bonuses.

 

How much should you pay in bonuses?

Let’s start with a top motivator—the number behind the bonus. Let’s face it - money is a motivator. But how do you decide how much to offer your employees for top talent?

A referral program shouldn't be considered a cheap strategy. Although referral programs significantly reduce your cost per hire over other sourcing methods, you still need to invest monetary resources into the program, including bonuses and rewards - you'll see a greater return with less investment than, using a staffing agency, but you can't expect to invest nothing and get great results.

Sixty-nine percent of companies in a recent study stated they offered between $1,000 - $5,000 in cash bonuses for referrals and placements. The cost of the bonus could be higher for hard-to-place candidates, such as engineers or other high-tech positions. You should structure your bonus program to the specifics of your business or industry.

 

When should you pay a referral bonus?

Many companies wait to pay referral bonuses once the candidate is hired and onboarded, and sometimes even until the three month mark of hire. This is intuitive - it makes sense to wait to make sure the candidate actually accepts the offer and stays with the company when a large chunk of change is on the line. This process can take months, though, and the longer you wait to pay referral bonuses, the less interested your employees will be in referring.

It's important to think about what your goal is when you're setting up an employee referral program. While referral bonuses are a good component of an employee referral program, it doesn't make sense to make them the only reward for participating. After all, your goal is to add top talent to your talent pool, not necessarily to make one referred hire.

Rewarding employees more frequently will boost the number of people your employees refer. One way to increase the frequency of rewards is to break up the referral bonus instead of paying it all at once.

Pay part of the bonus:

  • if the referred candidate secures an interview;
  • if the referred candidate gets called back for a subsequent round of interviews;
  • if the referred candidate gets hired; or
  • if the referred candidate satisfies the on-boarding process.

Not all referred candidates will become employees of your organization - but again, you want to encourage referrals. Financially rewarding your current employees throughout the hiring process will excite them about your program; hence, more referrals.

 

Should you offer micro-bonuses and rewards?

Financial awards and bonuses aren’t the only way to encourage your employees to refer top talent. Offering micro-bonuses or rewards will also increase employee participation while giving your culture a boost.

For example, you can give out Starbuck’s gift cards to the employee who refers the most women to your organization. Or, you can give a movie gift certificate to the employee who’s the first to refer a hard-to-place candidate.

You don’t have to break the bank to incentivize your employees. Popular non-cash incentives include prize drawings, company logo swag, and additional time off work.

Make employee referrals part of your culture. Make the process fun. Show your employees some appreciation. By doing this, you’re investing in your employees as opposed to an outside recruiting service or an online job board. Such appreciation will be sure to bring you additional high-quality referrals.

 

How should you design the process for submitting referrals?

The harder it is to submit a referral, the fewer referrals you’ll receive. If you’re asking your employees to complete long, convoluted forms during the referral process, you’re asking too much. Employees won’t take the time to complete the process. And, you don’t want the referral process taking too much time away from other projects that need to get done.

If you don’t make it easy to submit referrals, you’ll never get to the conversation about whether your referral bonuses are effective. Make the process easy and engage your workforce. Then, reward them.

Use your website or an internal employee portal for referrals. Allowing your employees to access referral software through their desktops, laptops, or smart phones will encourage more frequent participation. By providing only the required key information for a referral, employees can easily access and use the program without aggravation or confusion.

Additionally, think mobile and social. You can use technology that allows the company to access employee social networks. Think about how many potential, high-quality candidates may exist in your employees’ LinkedIn, Facebook, or Twitter connections.

Approximately 84 percent of organizations use social media for recruiting, with almost one-third of companies targeting mobile recruiting through smartphones. Recruiting potential passive job applicants is the number one reason businesses use social media for recruiting. Connecting through social media opens up possibilities for recruiting top talent.

 

How should you communicate referral bonuses to your current employees?

Communication serves as the driving force behind your employee referral program. If you employees don’t know about, or understand, referral program, then why would they referral stellar talent? If your employees don’t understand the rewards program, then what’s their motivation?

Your employees need to understand how your referral program works, including any bonuses or incentives. They also need to be able to easily access the list of positions you have open.

When crafting a communication plan, think beyond informing your employees about the program. Consider your employees as part of the cultural referral process - keep your employees in the loop throughout the recruiting and hiring process. Employees want to know to know what’s going on with their referral. By engaging your employees with information about their referrals, you’ll increase employee ownership within the program.

In addition to recognizing your employees with cash bonuses or other incentives, be sure to recognize them verbally. Share your employees’ referral successes company-wide. Include referral successes in a company-wide email. Discuss referral progress at company meetings. By receiving this additional recognition, employees will continue boosting your referral culture. This increases retention, productivity, and happiness in your current workforce; yet, another perk of your referral program.

If you’re going to spend significant resources in your referral program, why not get the results you want? By establishing an easy-to-use program that excites and motivates employees, you’ll start reaping the benefit of employee referrals.

After all, if your employees are excited about where they work, they’ll want their friends to share in the joy as well.

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