How To Improve Your Company with an Employee Referral Program

Employee referral programs are an outstanding way to attract potential hires to join your company at the least possible costs. In fact, it’s the most cost-effective way to deal with recruitment procedures in any company. The basic principle of friends helping friends get in the company just makes this an absolute choice to recruit people.

Here are some of the amazing benefits of doing employee referrals.

  • According to the survey on cost-per-hire in 2000 by the Employment Management Association, referral programs constituted about $500 compared to about $2,800 for those doing job print advertising, and a huge price difference for companies dealing with third party recruitment agencies. With this huge difference in costs, it is evident that employee referral systems are much preferred by many, if not all, companies worldwide.
  • Another good benefit of employee referrals is that since you are mobilizing your most precious business capital – your employees - you are in a way training them to be more social-bound and interact with their friends and acquaintances. In the end, with such a good training ground for your employees, your company is sure to reap the rewards for having an employee base filled with confident and socially-skilled human capital.
  • It is unlikely that your employees would recommend someone who cannot prove his worth. It’s career suicide for them if they do that, so you can be sure that you are giving your company’s orientation papers and tests to candidates who have better chances of getting hired.
  • Since one of the primary considerations of recruiting is the hiring process, you can have higher odds to get someone on the job sooner, as your employees would mostly recommend people who they know are ready to make a career change. This speeds up the transition time to fill your employee seats and get your business running at full capacity.
  • According to a survey conducted by Ohio State University, employees who were hired through employee referral systems stayed with the job longer than other employees who were hired out of other recruitment means. The survey revealed a 25% retention rate for those who were referred. This trend can be attributed to the kind of relationship or bond employees have, since they know each other right from the start of the recruitment process.
  • Another advantage of employee referral systems is that employees are not likely to demand expensive rewards for their successful referrals, compared to the high costs of hiring third party recruitment agencies or doing some newspaper ads. In fact, according to some figures gathered by Referral Networks, 85% of the respondents said they would be motivated by a reward of $1,000 or less, while 32% of those said they would be happy with a sum between $100 and $400.

While there are benefits and advantages, there are also pitfalls and disadvantages. One of the nasty disadvantages of employee referral programs is that your business competitors may file something against your company for stealing their employees. Another would be when your referral program has created discontent rather than a motivation to your employees. This happens when you have excessive qualifying factors before payouts. In the end you may just find yourself having to fill more seats.

It is still obvious that the benefits exceed the disadvantages, and the latter are just caused by an unplanned referral system. With the right kind of strategies and careful execution of this optimal recruitment tool, your company is sure to lure the right candidates. 


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