Should You Offer Your Employees the Same Referral Fees as Your External Agencies?

In a recent article, John Sullivan highlighted examples of three ultra-bold recruiting practices, commenting that they are quickly becoming mainstream and that those that don’t adapt will be left behind in the ongoing talent war. Another commentator suggested that these ultra-bold recruiting practices were only practical for an elite tier of hiring companies, who have sufficiently large budgets and resources.

I believe the reality is somewhere in the middle, a few of the examples highlighted by Sullivan would be hard for less resource rich companies to undertake but not all of them. In particular I see great opportunity for companies to financially incentivise their employee referral programs.   

 

Employee Referral Programs

Employee referral programs are recognised as being the highest contributing source of total new hires, whilst producing the best suited candidates and overall retention rates. This is true for all organisations irrelevant of industry, location or size, however companies such as Hubspot andThoughtspot are realising that results from traditional referral programs are no longer producing the talent needed to continue business growth. They are therefore championing new financially incentivised referral schemes, that to some may seem aggressive or radical.

Questioning Logic

Cash bonuses are by far the biggest motivator in getting employees to participate in employee referral programsWhen asked what they would change about their organizations’ employee referral programs, the number one response employees gave was, “Increase the value of the incentive.” Aberdeen Group, Talent Acquisition 2013: Adapt Your Strategy or Fail

These aggressive employee referral programs are mainly focused around high value ($15,000 to $30,000) financial rewards given to employees to incentivise them to refer highly skilled talent.

This concept appears radical because most employers are used to operating in an environment where it is possible to attract talent with traditional referral programs that are generally non-reward based or have low financial incentives, generally between $500 and $1500.

These same companies will however have nearly all paid an external supplier to source talent, where the average agency fee can range anywhere from $15,000 for skilled workers to $50,000 for highly specialised resources. In addition this fee is generally invoiced as soon as the candidate commences work and has a lower retention rate than employee referrals.

As the demand for talent continues to grow, isn’t it logical rather than aggressive to offer the same financial incentives to a hiring source that has been proven to deliver better suited candidates?

Taking the Leap of Faith

If insanity is defined as “doing the same thing over and over again but expecting different results,” talent acquisition may fit the bill.  Aberdeen Group, Talent Acquisition 2013: Adapt Your Strategy or Fail

To be clear I am not suggesting offering high level referral fees for every live position or as a replacement for traditional referral programs. Instead I am recommending implementing an incentivised referral scheme to be used in the same instances that you would normally engage with a third party recruitment supplier.

For companies who already operate in skill short sectors that include resources & mining, pharmaceuticals and technology, where spend on internal recruitment teams and / or external agencies is already considerable, then diverting some of this to an alternative sourcing medium should be more of a short logical hop than a leap.

For organisations operating outside of these core talent short industries, implementing a financial incentive program may be the difference between attracting average talent and the top ten percent.

Implementation

Financial incentives are often viewed as a quick fix solution, and in some instances this may be acceptable. The reality is that few companies use financial incentives as their sole attraction strategy, instead including them within a broader talent acquisition strategy that also includes alternative referral schemes.

The most significant challenges that recruitment teams face when managing financial referral incentives are being able to cope directly with an increased volume of referrals whilst ensuring the referral network continues to focus on high quality prospects. As with all referral schemes the high level solution is to ensure the referral network is given clear direction and timely, honest feedback.

Other Advice

There are lots of great articles written about successful employee referral programs, these handpicked ideas are most relevant to running a successful financial referral program.  

  • External agencies aren’t made to wait six months for a referral fee so don’t make employee refers wait, it dilutes the power of the incentive. A good solution is to pay the majority of the incentive upon candidate commencement and then pay a small bonus after they complete three or six months of employment.
  • Consider offering the financial incentive as a gross pay out, effectively covering the tax.
  • Make financial referrals available to all staff, similar highly skilled professionals generally refer the most relevant candidates but don’t miss out on a great referral from your intern, who will also likely appreciate the referral fee more!
  • Go a step further and make the referrals available to vendors, clients and business partners.
  • Some referrers aren’t financially motivated, provide them with the opportunity to give their fee to a charity of their choice and ensure there are other referral incentives in place that will appeal.
  • If employees prove to be very successful referring, rather than preventing them from continuing to partake in the incentive, maybe they could transition to becoming a recruiter or internal brand champion.

Conclusion

The purpose of this article is to challenge the belief that it is logical to pay high value financial incentives to external talent suppliers but not to internal employees.

Hopefully we have succeeded in helping you to question this and we can look forward to hearing about many more successful financial referral initiatives.

Other Reading / Sources

15 Ultra Bold Recruiting Practices, Are You Falling Behind Your Com... – John Sullivan, ERE

How Employee Referral Programs Turn Good Employees Into Great Recru... – Career Builder

The Value of Hiring through Referrals - Stephen Burks, Bo Cowgill, Mitchell Hoffman, Michael Housman

Talent Acquisition 2013: Adapt Your Strategy or Fail – Aberdeen Group

Six Way to Make Your Employee Referrals Really Work - Sajjad Masud,TLNT

Sources of Hire 2013 - CareerXRoads

Employee Referrals Your Go to Strategy for 2014 – John Sullivan, ERE

Views: 235

Tags: Agency Recruiting, Corporate Recruiting

Comment by Tim Spagnola on July 25, 2014 at 6:47pm

We introduced this practice 18 months ago at my organization. I'm the director of clinical recruitment and face an extremely competitive candidate market (as most in healthcare do). We have had great success with the program. The bonus is just below our standard fee for a contingency firm. Yet still a nice chuck of change. The one thing we did was tie it into three installments w/. retention time-frame benchmarks. To date we have made 11 quality hires off the program. So I would say this is a practice others might want to consider. 

Comment by Chris South on July 25, 2014 at 7:29pm
Tim, thanks for the response, this was exactly the type of example we were hoping to hear about. I like the idea of breaking the payment, it is important the referrer is compensated early but spreading the payment gives the best of both worlds. I would love to speak to you further about your program if you are open to this?
Comment by Keith Halperin on July 25, 2014 at 7:43pm

Thanks, Chris. I am that "another commentator". ISTM that a well-designed and implemented research project could indicate what amounts produce the best results.There may be such studies, but so far i haven't found them...

Cheers,

Keith

Comment by Tim Spagnola on July 25, 2014 at 8:05pm

Of course....part of the charm of this site. RBC is a place where recruiters and exchange such ideas. 

Comment by Chris South on July 31, 2014 at 4:21pm

Thanks Keith, you are right no such project appears to exist. I'm sure this will change over time. 

Comment by Chris South on July 31, 2014 at 4:23pm

@Tim, thanks, I'm hoping to write a follow up to this article once I've spoken to a few more companies who have run similar campaigns. I'll get back in touch once the follow up looks feasible. 

Comment by Keith Halperin on July 31, 2014 at 9:28pm

@ Chris: you're very welcome.  I don't want this to "change over time" I want this to change SOON.

If anyone else is interested, I suggest we propose that a formal study of this be done, and I'd be willing to reach out and look for researchers open to do it. That way, we won't have to guess, we'll KNOW (or at least have a better idea).

I'd also be interested in some formal, objective, peer-reviewed studies which help determine:

1) What is the optimum number of interviews and interviewers to get the best hires?

2) How much onsite face-time is necessary/optimum for effective work?

3) Is having the CEO or a hiring committee review all hires more. less, or about as effective at making good, cost-effective hires in a timely manner as more decentralized methods?

4) What recruiting functions are best kept in-house, and which should be farmed out?

5) Can you use pure Social Media (Sorry,, LinkedIn) to hire people quickly, and not just build "relationships with them?

These are all I can think of now Folks, but I bet you can come up with other $64,000 questions for the researchers to investigate....

Cheers,

Keith

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