Tech & Work

How my company created a successful employee referral program

An IT pro explains how the referral program at her organization sparked the recruitment of more than 20 percent of their new hires in 2000. Here's how a referral incentive program can help give your company gain a competitive edge.

By Kerri Koss Morehart

Companies have traditionally encouraged their employees to refer people they know for job openings. However, in today’s highly competitive job market, this informal referral approach may not be effective enough to attract and retain qualified employees. As a result, many employers have set up more formal employee referral programs to give themselves a competitive edge.

Benefits of employee referral programs include:
  • Cost per hire is reduced.
  • Potential hires are prescreened by current employees for cultural fit.
  • Current employees gain a sense of ownership.
  • Incentive payments to current employees as a new company benefit increase morale.
  • New hires have a built-in support network.

In this article, I’ll describe different types of referral programs and explain how my organization, SRA International, Inc., successfully used this recruiting technique to hire more than 150 workers during the last year.

Determine the best fit
First, determine what kind of referral program best fits your organization based on your recruiting budget and program goals. Three options include a casual program, a formal program, and an aggressive approach that I call the “Hollywood” program.

A casual employee program
A casual program is easy to implement, track, and monitor and has a straightforward reward element. Managers who adopt the casual program should:
  • Develop program rules and educate employees about how it works.
  • Post job descriptions so all employees are aware of openings.
  • Base reward criteria on position filled. For example, an employee might receive a larger bonus if they recruit an IT worker with highly desired skills versus an employee who recruits an entry-level worker.
  • Direct resumes to the recruiting staff for review and processing.

A formal program
In a formal program, more departments within the organization are typically involved with promoting the effort. Information about referral benefits and information about job openings are widely publicized through the company Intranet, company-wide e-mail, and paycheck teasers. The human resources department may organize a formal kickoff event with a prize drawing to encourage attendance.

Rewards are more structured—not only are there cash incentives for each hire but rewards for the most hires per quarter or year are also given. A formal program might offer a grand prize or “bounty bonus” for selected, hard-to-fill positions.

A Hollywood program
The Hollywood program incorporates the elements of the previous two programs but also has additional features, including recruiting via the Internet. Referrals are submitted online to the company Web site, and job postings include a link to “refer a friend.”

In the Hollywood program, prizes and rewards are more generous and structured, and the reward criteria is often more creative. For instance, you might split a cash prize between the employee and their favorite charity. The program may be expanded to include client referrals. To encourage retention, the organization should consider offering bonuses to employees when their successful referral reaches employment milestones. For example, let’s say an employee referred a help desk technician who remained employed for two years-the employee who made the referral would receive an additional bonus.

How it worked at SRA International
My company, SRA International, Inc., is an Information Technology consulting firm. We utilized a popular referral program last year to hire 152 people, a total representing 22 percent of all new employees.

The SRA program has evolved since its beginning 15 years ago and has since progressed to the Hollywood level. Today, employees receive referral rewards (ranging from $700 to $2,000) for each successful referral, depending on the position filled. SRA defines a referral as someone who is hired and stays at the company for at least 30 days.

Prizes, such as Palm Pilots and laptop computers, are awarded for the highest number of referrals each quarter. A grand prize of $25,000 is awarded at the end of the fiscal year, along with a $10,000 second prize and a $5,000 third prize. The fourth place winner receives a one-week cruise.

Patricia Mercado, SRA’s San Diego area manager, was this year’s grand-prize winner. Mercado has successfully referred several employees over the past five years, including administrative assistants, software developers, and an operations manager.

“We all know of at least one hardworking person who shares our values and work ethics, and this is the type of person we’d like to work with to make our company successful…winning the grand prize was a wonderful confirmation that I work for an organization that appreciates my efforts,“ said Mercado.

Lessons learned about creating a program
Over the years, SRA has learned how to run a smooth program. Here are some tips we used to help make the program a success:
  • Clearly define the rules: Make certain the program rules are clearly defined. It may sound like simple advice, but SRA overlooked this detail in the early stages of our program. We requested resumes for potential new hires without clearly describing the skills needed. As a result, we had a deluge of all types of resumes. SRA now posts job descriptions with each opening.
  • Build a budget: A successful program doesn’t have to be high-cost. Calculate current recruiting costs and evaluate areas from which you can reallocate funds to the employee referral program. Second, identify the reward—make the bonus fit the organization and adapt the rewards to the corporate culture.
  • Keep employees interested: Prompt payment (within 30 to 90 days of hire date) for successful referrals is one of the most critical contributors to program success. Also, keep the program fresh—adopt a new theme every year that reflects the company culture. Use company events such as a forum to present major prizes and awards and use smaller giveaways to publicize the program.
  • Your workforce is the key: A successful referral program can turn your entire workforce into a recruiting team, providing an advantage in a highly competitive job market. It also rewards current employees who contribute to the success of your organization.

Kerri Koss Morehart is the director of recruiting at SRA International, Inc., in Fairfax, VA.

Does your organization have a referral program? What are the pros and cons of using this technique? Post a comment or send us an e-mail.

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