Incentivising Employee Referrals

Incentivising Employee Referrals

Employee referrals are the means through which a company's existing social network is utilised for talent acquisition. The company's social network includes its current employees, past employees, vendors, customers, and other contacts to cast the widest possible net for attracting new talent into the organisation.


Employee referrals are the means through which a company's existing social network is utilised for talent acquisition. The company's social network includes its current employees, past employees, vendors, customers, and other contacts to cast the widest possible net for attracting new talent into the organisation. Initially, the term denoted a recruitment method that encouraged existing employees to suggest potential hires for the company. The logic behind such an approach was that the existing employees are well versed with the culture and work ethic of their employer, and are also aware of what it takes to be successful in the company. So, when the existing high-performing employees suggest potential employees, it is more or less likely that these potential employees possess qualities similar to the current employees. Additionally, the referred employees having a "preview" of the company results in a faster onboarding process. The new "referred employees" are sooner to get into their job roles, are more productive, and are more likely to stay in the organisation than those recruited from job boards or career sites.


However, it requires ingenuity and commitment to successfully implement employee referral management systems in any organisation. The employee referral network rules have to be kept clear, simple, and easy. To help in the implementation of the employee referral process, an organisation can either have a dedicated software platform, or it could be as simple as an applicant mentioning the employee's name with their application. Additionally, the involvement of the top management in educating the current employees about the importance of such a form of recruitment is important for the successful adoption and implementation of the employee referral programme. Keeping the existing employees committed to this programme by sharing details such as monthly updates on the programme implementation and special mentions and rewards to the referral evangelists are important to ensure that this programme remains self-sustaining.


A case of implementation of the employee referral process at the company Alpha Private Limited is cited below. Alpha Private Limited is a small-sized consultancy firm providing end-to-end engineering solutions to Small and Medium Enterprises (SMEs). It has its headquarters in Pune, Maharashtra. At present, the company has about 100 employees. Akash Kumar, the Founder-CEO of the company, was planning to expand Alpha's operations to two other cities, namely Chennai and Kolkata. The Chennai office was designated to serve clients in the southern region, while the Kolkata office was to take care of the eastern region. He believed that hiring a diverse workforce would enable Alpha to make a name for itself as a consumer-centric and consumerfriendly company. The company's vision was to provide personalised experience and 24x7 customer support. Akash was thinking of his yesterday's meeting with Ram Kumar, the HR Manager. The meeting had been called to decide on the strategy and plan of action for recruitment to keep up with the expansions plans.

Ram Kumar had suggested that one of the ways to capitalise on the existing workforce was to involve them in the recruitment drive by encouraging them to provide referrals. This, he said, was a win-win situation. "This is a win-win for the company," he said, "as the current employees will serve as the first level of vetting, a kind of firewall, to prevent bad hiring choices, especially for lateral entries for mid and higher-level positions." He also added, "such a practice will increase the loyalty of the current employees and make them feel empowered. They will feel responsible and involved in the induction of the new recruit(s) they refer. They will make the new recruits feel welcome and help them learn the ropes quickly."


Akash Kumar had approved it as a great idea, and had tasked Ram Kumar to look into the existing practices at good companies, and come up with an action plan for promoting referral-based recruitment at Alpha. Ram Kumar's presentation was to take place in three days' time.


Ram Kumar started his presentation with the advantages of using employee referrals. "The past research data based on studies worldwide," he said, "indicated that employee referrals result in the best applicant-to-hire ratio at 1 out of 10 versus 1 out of 18 from all the other sources. Making an offer for a new hire referred by an existing employee is on an average lesser by 20 days, versus 39 days for someone hired using other methods. Perhaps the best statistic of all is the employee retention rate - employees hired through referrals average 2.7 years, compared to 1.5 years for those hired otherwise." Then he presented what motivates employees to involve themselves in referrals. "Usually, employees are motivated to get involved in the referral process in order to help out a friend, work with friends they like, and also to help out the company they work for. Usually, a combination of such reasons motivate existing employees to engage in referrals," he said. He maintained that providing recognition and acknowledging the contribution of the employee are important ways of feedback essential for motivating employee referrals.


Thereafter, Ram Kumar described the employee referral practices followed by well-known companies. "In Accenture, employees are provided with a referral bonus. However, they adopt a unique practice and allow these employees to donate a part of the bonus to a charity of their choice, and Accenture would match that amount. In Google, another company where employee referral is used with great success, the method adopted for kick-starting employee referral is unique," he continued, "the Human Resources (HR) team involved with recruitment sits down with existing employees and ask them pointed questions like 'Who is the best product person you know in (New York) City?' While in Intel, a direct strategy of doubling the bonus of employees whenever they successfully referred to women or minorities was adopted. This ensured diversity hiring in Intel," he added.


Ram Kumar also clarified that implementation of such referral practices provided both extrinsic and intrinsic motivation to employees. Employees became supercharged, which ensured the success of the referral programme in these companies. He also explained that the strategy adopted by Google is based on a method known as aided recall, where the involvement of the HR team helped the existing employees to suggest the best people. The meeting concluded after they decided to meet once again after five days to explore the ways of introducing and implementing the referral system at Alpha.


The meeting resulted in Akash Kumar pondering over the implementation strategy for the proposed employee referral programme. He was pre-occupied over some decisions that were essential for the implementation of the referral strategy at Alpha, such as: -


♦ The extent to which Alpha can depend on referrals as a method of recruitment.


♦ Whether referrals must be restricted to the current employees alone or should anybody associated with the company be involved in the programme.


♦ When and how to announce the proposal to the employees, so as to ensure its success?


♦ Which among the various practices adopted successfully by companies throughout the world, may be implemented at Alpha?


♦ Should Alpha design its own reward system for its employees, and what steps should those be in such a scenario?



Dr. Santhi Perumal is an Assistant Professor at Institute of Management Technology, Nagpur. Her areas of research include managing relations at work, technology management, sustainability and research methods. Dr. Santhi did her PhD in Management from Indian Institute of Science, Bangalore.








Analysis by Ravi Mishra is the Sr Vice President / Regional HR Head - Birla Carbon, South Asia and Middle East.






An employee referral programme is certainly a great initiative which has been successfully implemented by many companies. Considering the fact that the CEO of Alpha Private Limited (APL), Akash Kumar, is onboard with the referral programme, it is imminent that the initiative will savour success. A buyin of the top leadership is essential for the high success rate of any initiative.


In APL's case, the proposal for the programme came forth in the wake of the company's expansion plans to two other major cities. It is noteworthy that Ram Kumar, the HR Manager, elucidated the success stories of global organisations to highlight the significance of the referral programmes


However, it becomes important for Ram Kumar to: -


♦ Reassess every dimension of the programme with contextual perspectives


♦ Avoid mix and match by replicating policies from other organisations; rather, he should design the programme based on the understanding of what would work better in APL.


♦ Evaluate some of the critical factors such as the demographic challenges, skill sets, availability of talents in terms of demand and supply, and attrition rate associated with new sites viz. Chennai and Kolkata.


The success of a referral programme is very contextual, and it depends on various factors and adaptability of line functions. Else, it will lead to bigger problems than solutions for APL in the future. To achieve success in the referral programme, Ram Kumar must firstly take the managers and the departmental heads on board by involving them in the process design. Thus, they become equal stakeholders with HR in rolling out the initiative. He also needs to share the purpose and intent of the scheme.


A referral programme –


♦ Is far more beneficial when the demand is greater than the supply for a given skill set


♦ Reduces the time delay and enables faster onboarding


♦ Provides longer tenure with higher chances of employee retention


At the same time, the CEO and HR Head need to take a policy call about the composition of the ratio of the candidates hired through the referral scheme and through external sources. Considering the nature of the business, APL should have a 40:60 (Referral: External sources) ratio. Moreover, the company needs to be transparent with its governance and policy details. Apart from helping the organisation and the individual, this programme also reflects the true engagement of the employees in terms of advocacy for the company. The process should be regularly monitored and audited to check if it involves a larger spread of employees or a clustered group and reasons thereof.


The challenges thrown by a referral programme must be communicated to the leadership at APL. And these anticipated challenges must be addressed through appropriate measures while drafting the policy. The company needs to authenticate the implementation without any favour or bias in the selection process. The leadership team owns the responsibility of creating a culture wherein selection finds the most suitable talent without any compromise in quality or timeline. The company must design the programme in such a way that a multi-tier selection process through the support of technology/ software can map the profile of prospective employees. Any influence on the selection panel (to be pushed up by employees) should find no space.


Another important factor of success lies with the approach of incentivising employees who connect as a bridge to support ownership. APL should have the provision of a mixed approach with monetary and non-monetary reward and recognition programmes. It helps the company to retain the new as well as the old employees.




Analysis by Rohit Hasteer is the Group CHRO for, Prop and He has an experience of more than 20.





Employee referrals are a goldmine for scouting good talent. Some of the best companies close about 40-45% of their positions through employee referrals. Good companies create robust employee referral programmes that focus on augmenting and rewarding people for bringing their friends on board. For Alpha, considering that it is a close-knit unit of 100 people, referrals are an option worth considering. However, this comes with a caveat - since the employees are based out of Pune, they may or may not be professionally networked in Kolkata and Chennai, where Alpha plans to expand. In spite of this, involving employees in building organisational talent is always a great tool to make people feel included and valued.


A hybrid approach of external and internal sourcing will work better for Alpha, and ensure that they do not put all their eggs in one basket, leaving a big gap to be filled later. A survey can also be carried out within the organisation asking them about their network, and the ability to refer people in Chennai and Kolkata. This will give them a good sense of how much they can rely on referrals alone for expansion.


While references from any trusted partner (internal or external, or associated parties) is a good option to consider, commencing the initiative from the employees is a good head start. Involving anyone associated with the company also has the risk of creating a conflict of interest. Hence, it is always advised that the hiring manager and HR not be covered under the benefit (financial or otherwise) of the employee referral programme/ policy.


Involving people from the start is always a good idea. As soon as the business and expansion plans are firmed up, the time is apt to announce the same inviting employees to be a partner in the growth journey. Doing a small town hall meeting to take the people through the company's growth plans and following it up by announcing the employee referral policy is a good approach. This gives them an insight into what's in it for them (financial rewards and option to work with their friends).


The town hall meeting can be followed by email communication, posters, desktop wallpapers/ screensavers, etc., around the Referral Policy. They can also make announcements post the selection/ joining of people who have been hired through the referral channel. Many organisations also share the amounts that they have disbursed to people as a part of the employee referral programme.


Rewards as a part of the employee referral policy is an important element to start with, especially for Alpha at this juncture. Companies like Google, Facebook, or Amazon have been able to create strong advocates through strong employer branding, high engaging work culture, and most of all, great assignments and people to work with, which provides an added incentive to refer more people to the company. It creates an attractive virtuous loop, and hence people refer even without much incentivisation or reward. However, for Alpha, it may be a smart move to provide instant gratification by rewarding their people for successful referrals through cash (paid along with salary) or give gift vouchers for each successful referral. Alpha also needs to make sure that they start small, effective, and scalable, rather than going overboard from the start. A smart way to arrive at the reward amount can be knowing what the company would have incurred had they sourced the candidates via consultants, external job portals, etc., and share a part of it with the people. This helps the company save costs and also reward people for their contributions.


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