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Operating Referral Programs on a Limited Budget

February 8th, 2011

One of the most common arguments against launching an employee referral program has to do with the lack of budget for such a program. Many recruiting leaders and line managers are familiar with the stories of outrageous employee referral bonuses, and multi-pronged program advertising campaigns that cost serious money. The stories have helped perpetuate the perception that without hefty financial support, an employee referral program cannot be successful. That’s not the case.

Approximately two-thirds of the employee referral programs in existence operate without a dedicated budget. While many of those programs produce mediocre results, there is proof that programs operating on a limited budget can produce world-class results. A number of best-practice firms have found that it is possible to operate the employer referral program on a limited budget or even with no budget all, if you know how to market and motivate employees. This article covers how referral programs can operate without breaking the bank.

The Referral Bonus

The largest expense item for most referral programs is the referral bonus. Approximately 90 percent of the programs I have encountered use some form of monetary incentive, the largest of which I have seen recently is $40,000. While that might seem extreme, keep in mind that for some positions you would most certainly pay more than that in advertising and executive search fees. The evidence is clear: Bonuses positively impact referral rates.

But it is also clear that there is a diminishing return as bonus amounts escalate. The average bonus across all industries for full-time hires is approximately $1,200. However, as I stated earlier, it is possible to operate a successful program without paying a bonus. FirstMerit Bank, for instance, set industry standards in referral rates without paying a bonus. The rest of this article will focus on some tools and approaches that you can use to get excellent results without spending a lot of money.

(Note: Someone once said that everyone has a price, a statement that has profound relevance to referral program managers. The truth is that if your organization is a great place to work, what you will have to do to motivate employees to participate is a lot less than if your organization is a less than desirable employer!)

Tips on Getting Great Referrals without Large Cash Bonuses

If you stand back and look around, there are lots of examples of people doing altruistic things without the promise of a cash reward. For example, many people regularly donate their time to charities without any expectation or thought of remuneration. Getting employees to participate in a referral program without referral bonuses requires that you think like a charity.

To get someone to do something, whether it is to refer a friend or colleague, or to accept a job, requires that they perceive a positive exchange in value for what they are giving up. Again, value can be generated in numerous ways. If you can’t use monetary bonuses, find something you can use; it can be as simple as an honest thank-you or as complex as a raffle for non-monetary prizes such as a reserved parking space or cubicle by a window.

The Best Option — Use a “Give Me Five” Program

Traditional referral programs are great, but you don’t need one in order to gather some of the best names possible (as recruiting prospects). Most referral programs are “passive” in that they don’t seek out individual employees and ask them to participate in the program. A more proactive approach is to actively seek out the best people in your organization and directly ask them to contribute the names of the best people they have worked with. I call that program “Give Me Five”. The best thing about this program is that most people will participate without ever expecting a bonus or reward!

The program is based on the fact that all of us come across some extremely talented people in our daily activities, but rarely do we take the time to notify recruiters or initiate a referral conversation. Employees know in their minds who these stars are, but need a trigger to stimulate the conversion of that talent from contact to candidate.

Using this approach, an HR generalist or recruiter attends a regularly scheduled meeting of employees. With the permission of the meeting sponsor, the HR person simply approaches key individuals during breaks and asks them directly to help “build the team” by thinking back and providing the names of the five:

  • Best managers they have ever had
  • Best team leaders they have encountered or worked with
  • Best former employees they would like to see return
  • Best out-of-the-box thinkers
  • Best problem solvers
  • Best sales people who consistently exceed expectations
  • Best mentors of junior employees
  • Best people that worked well under pressure
  • Best team players/co-workers
  • Best forecasters
  • Best at a particular skill
  • Best professionals with international experience
  • Best people with diverse backgrounds
  • Best customer service professionals encountered

It turns out that in a face-to-face meeting, individuals are more willing to provide names. You can go directly to their offices or hold “Rolodex meetings” to also capture the names.

Next Best — Make Them “Own” the Teambuilding Process

If you build your referral program exclusively around money and rewards, you’re making a huge mistake. Yes, people will refer Canada if there is a significant reward, but they are also likely to bombard you with large amounts of low-quality resumes in the hope that one of them might filter through and earn them a bonus.

A superior approach is to convince every employee and every manager that it’s to their direct benefit to have the best team working alongside them. That requires that they agree to accept some of the burden of identifying the very best.

These employees and managers, because of their extensive technical knowledge and contacts in their field, will definitely be able to significantly increase the quality of those who are sourced and hired. An analogy can be found in sports: While you would like to pick your little brother for your team, you actually pick the biggest and strongest person because you know you need a great team in order to win. When winning is critical and the responsibility is shared, everyone is willing to look for the very best, instead of just referring their closest friends.

The steps in the process are actually quite simple. First, you work with the accounting department to determine the dollar difference between on-the-job performance of an average versus a top-performing new hire.

Then you develop a chart showing the correlation or direct relationship between the number of referrals in a business unit and its ability to meet its stated goals and metrics. When you present these startling facts, almost every manager and employee will realize that great recruiting has a direct impact on their ability to do their job. Once they realize that if they hire a weak person, they will have to do “makeup” work to account for the higher error rate, they will accept their responsibility for providing the recruiting department with the names of the very best people they come across.

Dr. John Sullivan is a well-known thought leader in HR. He is a frequent speaker and advisor to Fortune 500 and Silicon Valley firms. Formerly the chief talent officer for Agilent Technologies (the 43,000-employee HP spin-off), he is now a professor of management at San Francisco State University. He was called the “Michael Jordan of Hiring” by Fast Company magazine. More recruiting articles by Dr. Sullivan can be found in the ER Daily archives. Information about his numerous other articles, books and manuals about recruiting and HR can be found online
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