Employee referral programs are powerful. Research has found that the right employee referral incentives lead to faster hires, cost savings, and happier employees. However, that doesn’t mean all employee reward programs are created equal. As with any other internal initiative at your organization, there are do’s and don’t’s when it comes to building a high-quality employee referral program that feels rewarding to employees.
Below are three best practices to follow, as well as our recommendation for what structure we’ve found to be most effective for our customers.
#1: Be Strategic About What to Incentivize
There are two components of your employee referral incentive program to take into consideration: the outcomes and the activities that drive the outcomes. Most companies will only reward the outcome, which happens when someone is hired. This is important, but it isn’t always enough to build an effective employee referral program. Why? Because most rewards from employee referral incentive programs come in 90 days after the new hire has started at the company. That’s a long time to wait between referring the candidate and seeing the results. This disconnect between earning the reward and actually receiving the reward can be demotivating for employees who take time out to refer someone they know and vouch for their company.
Consider the level of effort required to hire one mid-level marketing role. Depending on your conversion rate, the activity required to drive that outcome would be to generate around 50-100 applications, 15-25 phone screens, 5-10 in-person interviews, and two offers.
On the other hand, if you’re trying to create a culture of consistent referrals, it’s important to incentivize top-of-the-funnel activities as well - such as generating new candidates to add to the talent pool or getting a qualified applicant through to onsite interviews. This opens up opportunities to employee recognition so they see the benefits of sharing referrals, and it also builds your long-term candidate pipeline. This will save the team a lot of time since they won’t have to start the hiring process from scratch, and will instead have a robust selection of candidates that have already been pre-vetted.
If you’re interested in building a referral pipeline or to reward these micro milestone events leading up to the offer (onsite interviews, etc.), consider offering our Ivory, White Gold or Tiburon rewards to motivate a wider group of employees.
#2: Offer a High-Impact Incentive
Companies are frequently doling out large cash bonuses in employee referral programs - the exact size of the cash bonus depends on multiple factors, like the city of the job market, the level and urgency of the role, and the size of the company. For instance, some tech companies in the San Francisco area pay upwards of $20,000 for referrals, such as a key engineer or C-suite level hire.
But is the value of cash incentives worth it? Behavioral economist Dan Ariely says no.
Ariely conducted an experiment where he measured the productivity of factory workers who were promised one of three rewards: pizza, compliments, or a cash bonus of $30. Ariely found that the cash bonus group was the worst motivator and actually negatively affected productivity levels. Whereas the pizza group had significantly higher levels of productivity - likely due to the communal nature of sharing a meal with co-workers. This is the reason why referring a friend at work is so powerful. It’s a way for employees to feel like they’re building their community.
That’s also why we always recommend experiential rewards that are similar to the monetary value of the cash bonuses. Even though they’re similar in cost, the experiential reward will be much more impactful for your employees because it’ll create a lasting, shareable memory.
#3: Promoting Your Employee Referral Program
For an employee referral incentive program to be successful, you have to get your employees excited about participating. The best way to drive employee engagement is to leverage socialization to generate internal excitement, as well as build a visible external brand. Below are a few tips on how to go about doing this:
- Make it visible. If you want employees to participate in your employee referral program, they have to know it exists. Build internal buzz by announcing the program during high-energy team gatherings, like all-hands meetings or Friday happy hours. Another tactic is to encourage your employees to post about the job on social media - provide your employees with a few copy options to share easily. And don’t forget to have a steady drumbeat of follow-up through channels like email, Slack, and lunch and learns.
- Get leadership involved. Make sure your leadership team is aware of and excited about the employee referral program. Having your CEO, General Manager or VP of People share a personal office-wide email reiterating the value of employee referrals can be motivating for your employees. This also demonstrates that everyone at the company is on the same page and driving toward shared goals.
- Capture stories from experiences. Finally, have your marketing or HR teams capture the great results from the referral program. If one of your employees wins an experiential reward for bringing in an awesome candidate, have them share the story on the company blog or create a video of their experience so it can be easily shared at the next team meeting or blasted out in the monthly newsletter. This is a surefire way to get other employees motivated to submit high-quality candidates and go for the next reward themselves. Check out the video below from Helix employee, Justin, who had such a great time with his experience - which he won after referring new candidates - that he decided to share it back with his HR team.
What We Recommend
A tiered structure is optimal for employee recognition referral programs. With this format, referrals are encouraged by giving employees immediate recognition for a certain number of qualified submissions, and then a bigger reward based on the value of the role hired. So a director-level hire would lead to a more substantial experiential reward than an entry-level hire. This tiered format stimulates referrals quickly, produces high-quality submissions, and keeps employees engaged.
Bonus: If you want to add an extra ‘oomph’ to your employee referral incentive program, consider providing an experiential reward during the onboarding process. The first 30 days that an employee is at a company is highly correlated to attrition and retention. So this window is a prime opportunity to make a great first impression. To take it a step further, make the reward an activity that the new hire can do with their manager or teammate since their relationship will have a huge effect on the employee’s job satisfaction. Or have the reward be an activity for the new hire and whoever submitted them as a candidate so they can celebrate as friends!
Our customers have seen fantastic results from integrating experiential rewards into their employee referral incentive programs. With our help...
Our customer Amplitude Analytics recognizes its employees for any candidates that make it to the onsite interview stage, and for successful new hires. They’re a great example of using rewards to incentivize both mid-funnel activities, as well as successfully filling open roles. As a result of this program, the company:
- Grew from 200 employees to 323 since signing on over the past 12 months, which is around 62% growth.
Our customer Guidewire hosted a long contest where individuals with the most referrals every month won a reward, creating a consistent cadence of incentives to keep employees engaged. At the end of the contest, the employee with the most overall referrals won a special reward. As a result of this program, the company:
- Saw a 360% increase in referrals.
- Saw a 41% increase in their percentage of hires by referral.
Do you have other best practices to share for employee referral programs? If so, we want to hear hear your employee reward ideas!
And if you’re curious to learn more about how you can integrate experiential rewards into your employee referral incentive program, we’d love to connect. Request your free demo online today!