Knowing Versus Thinking: Your Employee Referral Program Isn’t as Good as You Think

Over the past six weeks, we have attended eight large conferences that focus on or relate to talent acquisition. On the agenda in all but one were sessions dealing withemployee referral best practices (and Master Burnett and Gerry Crispin will be leading a discussion of referrals at ERE’s March 23-25 conference in San Diego).

Since we have invested a great deal of time investigating both the design and performance of programs in hundreds of organizations, we always make it a point to check out such sessions.

After struggling to sit through nine presentations and listening to countless uninformed opinions, we have to lash out at the masses of professionals who manage employee referrals in their organizations yet remain woefully unaware of what constitutes outstanding, good, average, and woefully ugly program performance.

Below Average Isn’t Great By Any Measure

The first observation that left us absolutely dumbfounded was the fact that nine out of the eleven companies presenting (some sessions were panels) hired significantly fewer employees via their employee referral program than the average company, and that one presenter didn’t even know what percentage of external hires their program produced.

You may think that hiring 1:5 external hires through your firm’s ERP is a good thing, but our research (nearly 700 programs strong) shows that the natural rate of referral (that achieved with no formal program at all) is 16%. Generic programs, those with ad hoc management, often produce 24-27% of external hires. Formally managed programs produce on average greater than 34% of their organizations’ external hires and strategic programs now often produce 48% or more.

Volume of external hires alone doesn’t distinguish a great program, and on that note we congratulate most of the speakers we encountered. All of the programs being highlighted had design elements that were put in place to specifically address organizational weaknesses. Some program elements focused on making the program more visible among remote employees who work in field roles; some focused on drawing more attention to urgent needs; and others on addressing past issues with poor administration of the program. While the design elements could certainly constitute “better practice” when the scope of consideration is local, none were addressing elements that characterize “best practice.”

Your Opinion Isn’t Always Right

Another common misconception that popped up frequently in session Q&As and post-session discussions was the notion that employee referral programs negatively impact diversity slates. Two presenters even went so far as to acknowledge this notion as fact. Few things disturb us more than when people in program-management roles make decisions without verifying assumptions and testing hypothesis. The research is very clear on this issue: 89% of the time employee referral programs produce diversity slates as diverse or more diverse than the organizations overall sourcing efforts. In the 11% of cases where referral programs produce less diverse slates, the organizations are almost always hiring a mass quantity of blue collar workers in geographic regions with low diversity.

The Rush to Social Media

It’s no secret that we love social media and see it as a phenomenally powerful way to dramatically improve nearly every key talent management activity in the enterprise, but simply adding social media broadcasting capability to employee referral programs is not by itself a best practice. If only 17% percent of your employees are active on social media, investing a great deal of time and effort in socializing your program ignores the masses that could be tapped with far simpler solutions. Doing something just because everyone else is doing it is never a good reason, yet it’s really the only reason the vast majority of speakers could articulate for investing in social media enabled ERP tools.

Step Up

If you manage your organization’s employee referral program or influence it in some way, you need to step up and accept responsibility for managing the design and performance of the program. Numerous studies demonstrate that a well-managed employee referral program can accomplish many things; unfortunately, too few organizations establish goals for their program and then design them to be able to accomplish them.

Want to know where your program stands? Participate in the 2010-11 Dr. John Sullivan Employee Referral Program Design and Performance Benchmark Study. Participation is free, as are summary results. Data collection kicks off Novmember 15, 2010. Pre-register to participate at https://bit.ly/ERPStudy.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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