It is simple. The best people are not looking for work. They are fully employed and succeeding elsewhere.
However, these passive candidates are often the best people to hire. How do you reach them?
Let me give you an example: Scott Young of PennComp[i] in Houston leads a very successful I.T. services consultancy. Scott is very careful with his time. He has family and faith priorities in addition to his company's needs. He is particularly sensitive about wasting time when hiring.
What's Scott's trick to finding superstars more quickly?
When I talked with Scott years ago, he was paying his employees and anyone in his network a $6,000 bonus when they refer someone he hires. As a former Arthur Anderson consultant, he has a network of over 500 peers.
However, you miss the point if you just look at the reward money.
What does it cost you to delay a hire because you are unwilling to reward your employees to find people for you? The headhunter fee for a new hire can be at least $10-$30,000, plus the time and other costs to find someone are huge. Add to that lost opportunity costs of not having a good person in the open role; and the stress on other employees who try to cover the responsibilities of the open position…
WAKE-UP: A LinkedIn Global Recruiting Trends report concludes 48% of new hires are identified through employee referrals. This makes employee referrals the top source of great talent. If your employee referral program is not bringing you great candidates, or you don’t have one, then now is the time to develop a killer employee referral program.
Referral programs can ask people to refer career candidates to you without any reward. Some leaders believe their employees should refer people because “it’s the right thing to do.” That is partially true, but then you are disregarding the other side of the equation.
Your company saves money on recruiting and time to hire when you hire a candidate that an employee referred to pursue a career with your organization. Do you deserve all the profit and savings of that transaction?
Wise leaders realize their company is saving $10,000-$50,000 by hiring someone who has been referred. So why not give a portion of that savings to the loyal employee who referred the person?
At the very least, make a donation comparable to a referral reward to a non-political registered nonprofit that is meaningful to the employee who referred the new hire.
As a young man I worked on the floor of the Pacific Stock Exchange. We had a saying: “Bulls make money. Bears make money. Pigs go broke.” The movie, Wall Street, about Gordon Gekko said it slightly differently (below), but the point is the same.
Demanding or expecting your people to refer their friends and associates without compensation is piggy behavior.
Some companies can motivate employees to make more referrals without offering cash or other types of bonuses. The challenge is busy employees don’t take the time to think about recruiting. Like any successful company initiative, you have to drive the behavior.
In most cases, the employee’s referral fee is only 1-10% of the savings and profits your company gains from a referral. The most popular programs are the ones that pay a reward ranging from $500-$7,500. I’ve seen rewards for some hard-to-find positions as high as $20,000.
My experience is most referral programs pay people $500-$1,500, with the more generous ones landing at about $2,500 up to Scott’s $6,000.
With or without a referral bonus program you should be emphasizing how referrals make your workplace better. Remind employees how enjoyable it is to work with other great people, and how superstars and solid performers benefit your company overall.
Lots of top companies are having success with employee referral programs. For instance:
1. Salesforce organizes recruitment Happy Hours. These are get-togethers where employees can invite the people they want to refer. Their employees have been paid more than $5.5 million worth of referral bounties.
2. Enterprise Rent-A-Car has a culture of competition. Their employee referral program encourages regions to compete against each other, and rewards winners with cash bonuses for the most referrals.
3. PURE is an American property insurance company. Between 40% and 60% of its employees have been sourced through referrals.
4. GoDaddy made it a game to increase developer referrals. They put up posters in the work areas of their developers asking for employee referrals, but they wrote it in computer code. Decoded, it read: “If you know of a coder in your network who kicks a--, referred to GoDaddy Recruiting.”
5. One approach Google uses is to ask their people. For instance, if they want a great cloud app salesperson in Manhattan, New York, then they ask employees: “Who’s the best cloud app salesperson you know in Manhattan?”
6. InMobi parked a brand-new motorcycle at the entrance of their offices to inspire employees to help them hire engineering managers. The 900-person firm shows a Royal Enfield bike for their India offices and a Vespa for their American office. Employees could choose between a brand-new motorcycle and a trip to Bali. The program increased their employee referral rate of people hired from 20% to 50%.
7. Freelancing marketplace Fiverr wanted to increase employee referrals by creating a game on Zao, an employee referral app. Zao creates a game amongst employees by offering points for sharing jobs and referring friends. The platform also notifies employees about status changes of their referrals. Top Fiverr employees receive gifts on a quarterly and yearly basis.
You have options.
Consider your company culture and the preferences of your employees. Design a program that engages people rather than something that is perceived as a burden.
Referral payments demonstrate Sincere Gratitude, the third strand of my 3strands Leadership discipline, to people who recommend career candidates to your organization that you hire.
GREAT Leaders love to reward people for extra effort. Referring people to your firm is added work for employees and can put those relationships at risk. They deserve a reward. If you would pay a recruiter, why not your people?
Here are some quick tips to launch and sustain a great employee referral program:
1. Announce the program by giving examples of how employees have referred great people. Ideally, you can humbly include someone you referred who was hired and is a superstar.
2. Communicate updates biweekly or monthly. Have quarterly meal events where you walk through how to submit a candidate; celebrate rewards paid-to-date and referral candidates in your pipeline; and have managers explain their current openings.
3. Be a role model. If you want your people to recruit others, then you need to do it too. Track your referrals in the program even though you don’t get paid for them.
4. Do not be greedy. Let’s say you have a rapidly growing firm and an employee goes crazy on your referral program. They end-up making $100,000 in referrals bonuses. I doubt this would ever happen, but if it does, don’t stop them! If this happened then they probably saved you over $1 million.
5. WORK THE PROGRAM. Communicate. Encourage. Inspire people rather than givve them a guilt trip. Engage with most people to talk with people who know people who know people. Hiring people in their limited network of friends and family is limited. Get people networking.
The only exception are the super introverts and a limited number of others who do not network comfortably. Don’t force people to network if it’s uncomfortable for them.
Again, BE THE ROLE MODEL. You should be doing 2X-3X as much networking as you ask of your people.
6. Do not pay more to non-employees for referrals than you pay your employees.
7. Pay the referral bonuses 90 days after the start date of the new employee. If they fail before that then everyone gave it a try. If the new hire fails after 90 days then it is a management issue and the person who made the referral still deserves the bonus.
As an option, you can design a program that gives some perks or maybe 10% of the bonus to the employee who referred the new hire at 30 and 60 days. Just remember, all paid bonuses are non-refundable. You never want to ask or require an employee to return a bonus.
Our Hire the Best program has a more complete write-up, including a sample program.
Let me know if you have any questions.
David Graham Russell
Leadership Activist, Author & Consultant