Setting Up an Employee Referral Program: 5 Steps to Success

Referral Madness

About 24 percent of all new hires come from referrals, reports human resources software provider iCIMS. That number is even higher among companies that receive top ratings from their employees. For example, an impressive 52 percent of new hires come from employee referrals at Alabama-based Intuitive Research and Technology, which tops Great Places to Work's "2015 Best Medium Workplaces" list. Another middle market company on the list, Illinois-based insurance brokerage Assurance, makes 54 percent of its new hires from employee referrals.

Employee Referrals Balance an Uneven Recruitment Playing Field

Because middle market companies typically lack the financial resources to offer massive compensation packages and don't have the corporate name recognition of larger rivals, they are sometimes at a disadvantage when recruiting talent. As a National Center for the Middle Market report, "Building the Top Team: How Middle Market Firms Attract and Retain the Top Talent that Fuels Their Success," explains, "middle market companies must find innovative means of attracting top caliber candidates" despite these limitations.

One of these "innovative means" is a well-designed, well-implemented employee referral program that empowers the people who understand your middle market company best — your employees — to act as your ambassadors, tapping into their social and professional networks to find the talent you need.

5 Steps to Setting Up an Employee Referral Program

1. Have engaged employees who can articulate to people outside your middle market company what makes it a great place to work. Start by having an intercompany conversation about your culture and everything else that makes the workplace attractive, such as compensation, company values and growth opportunities. Before you can build your employer brand externally, you need to build it internally by helping your employees understand what makes your company great. That way, you'll have employees both eager and capable of acting as recruiting ambassadors.

2. Offer employees creative incentives to participate in the program. For example, if an employee makes a referral, offer them a gift card or a small cash bonus. If you hire the referred candidate, pay a bigger bonus (depending on the importance of the position), and maybe another bonus after the referred hire completes their first year on the job. Consider nonmonetary recognition too, such as a simple thank-you note or inviting the referrer to lunch with an executive. Ask employees about the kind of incentives that would encourage participation in the referral program, and then seek to provide those incentives.

3. Communicate to employees often about the referral program, its benefits and how important it is to the company's goals. You'll want to do this in training sessions and other meetings, along with through email, your company's website and its social media channels. The program will not be effective if employees don't know how it works. Moreover, you need to make sure all employees know when a job position opens so they can read the description and consider whether someone in their network is qualified. Make the process easy by offering multiple ways for employees to submit referrals.

4. Help your employees extend their social networks. As CareerBuilder explains it, "Don't make your employees go it alone — train them to be better networkers. Educate employees on soft skills like how to identify valuable contacts, make solid introductions, establish mutually beneficial dialogues and determine if and when they should consider referring someone to your organization."

5. Implement systems to track referrals and communicate with referrers as the hiring process moves forward. This will make the referrer feel appreciated and incentivize them to keep making referrals. A lack of communication can create frustration among referrers, a negative experience that may quickly stop the positive flow of employee referrals.

An employee referral program is a cost-effective way to attract talent to your middle market company by deputizing the people who know you best to tap into their networks. To motivate your employees, ensure they understand what makes your company special, then incentivize them to communicate that message to their connections. Consistent communication is essential for any effective referral program, as are the right monetary and nonmonetary incentives. Following the five steps listed above will move you well on your way to receiving many excellent employee referrals.

Has your midmarket company set up an employee referral program? What incentives do you offer? Let us know in the comments.

Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+ and visit his website.

" readonly="readonly" class=" templateElement darken lgs-3 atb-true addToBody template-textfield-16515 element-id-16515 notrequired penull isNotParentElement ">

An effective employee referral program may be the single best way for your middle market company to attract and retain talent. It's not only more cost effective to identify candidates via an employee referral program, but these hires also tend to remain at the company longer and integrate better into the culture, according to HR consultancy CareerBuilder in its e-book "Referral Madness."

About 24 percent of all new hires come from referrals, reports human resources software provider iCIMS. That number is even higher among companies that receive top ratings from their employees. For example, an impressive 52 percent of new hires come from employee referrals at Alabama-based Intuitive Research and Technology, which tops Great Places to Work's "2015 Best Medium Workplaces" list. Another middle market company on the list, Illinois-based insurance brokerage Assurance, makes 54 percent of its new hires from employee referrals.

Employee Referrals Balance an Uneven Recruitment Playing Field

Because middle market companies typically lack the financial resources to offer massive compensation packages and don't have the corporate name recognition of larger rivals, they are sometimes at a disadvantage when recruiting talent. As a National Center for the Middle Market report, "Building the Top Team: How Middle Market Firms Attract and Retain the Top Talent that Fuels Their Success," explains, "middle market companies must find innovative means of attracting top caliber candidates" despite these limitations.

One of these "innovative means" is a well-designed, well-implemented employee referral program that empowers the people who understand your middle market company best — your employees — to act as your ambassadors, tapping into their social and professional networks to find the talent you need.

5 Steps to Setting Up an Employee Referral Program

1. Have engaged employees who can articulate to people outside your middle market company what makes it a great place to work. Start by having an intercompany conversation about your culture and everything else that makes the workplace attractive, such as compensation, company values and growth opportunities. Before you can build your employer brand externally, you need to build it internally by helping your employees understand what makes your company great. That way, you'll have employees both eager and capable of acting as recruiting ambassadors.

2. Offer employees creative incentives to participate in the program. For example, if an employee makes a referral, offer them a gift card or a small cash bonus. If you hire the referred candidate, pay a bigger bonus (depending on the importance of the position), and maybe another bonus after the referred hire completes their first year on the job. Consider nonmonetary recognition too, such as a simple thank-you note or inviting the referrer to lunch with an executive. Ask employees about the kind of incentives that would encourage participation in the referral program, and then seek to provide those incentives.

3. Communicate to employees often about the referral program, its benefits and how important it is to the company's goals. You'll want to do this in training sessions and other meetings, along with through email, your company's website and its social media channels. The program will not be effective if employees don't know how it works. Moreover, you need to make sure all employees know when a job position opens so they can read the description and consider whether someone in their network is qualified. Make the process easy by offering multiple ways for employees to submit referrals.

4. Help your employees extend their social networks. As CareerBuilder explains it, "Don't make your employees go it alone — train them to be better networkers. Educate employees on soft skills like how to identify valuable contacts, make solid introductions, establish mutually beneficial dialogues and determine if and when they should consider referring someone to your organization."

5. Implement systems to track referrals and communicate with referrers as the hiring process moves forward. This will make the referrer feel appreciated and incentivize them to keep making referrals. A lack of communication can create frustration among referrers, a negative experience that may quickly stop the positive flow of employee referrals.

An employee referral program is a cost-effective way to attract talent to your middle market company by deputizing the people who know you best to tap into their networks. To motivate your employees, ensure they understand what makes your company special, then incentivize them to communicate that message to their connections. Consistent communication is essential for any effective referral program, as are the right monetary and nonmonetary incentives. Following the five steps listed above will move you well on your way to receiving many excellent employee referrals.

Has your midmarket company set up an employee referral program? What incentives do you offer? Let us know in the comments.

Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+ and visit his website.