Referral recruitment programs vs other hiring strategies

Internal employee or social referral recruitment programs are catching on vis-à-vis other traditional forms of hiring such as walk-ins, recruitment agencies and job portals. However, with the advantages of referral hiring there are some disadvantages too. Karthik Raju sheds some light (and some statistics) on the topic.

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Referral Recruitment: A match made in heaven?

by Karthik Raju

Hiring the right person is like marrying the right person. So organisations should be very cautious before they get married to the right talent.

Arguably, one of the most effective ways to marry the right talent is to use existing employees to play match-maker. All things being equal, job-seekers recruited through this channel tend to be a better fit for the organisation, besides checking off other boxes as well.

What we have just described is ‘referral recruitment’, where a company asks its own employees to refer suitable candidates to fill job vacancies by tapping into their own networks.

In this digital age, these ‘networks’ are usually social or professional networking platforms. Word-of-mouth is another popular way to spread the word.

Referral recruitment is gaining a lot of traction because it is yielding good results both for job-seekers as well as recruiters and talent hunters.

Candidates sourced via referral recruitment are usually a better fit for the companies hiring them; they tend to stay with the organisation longer than those sourced through traditional channels; and they make for a better culture fit with the organisation.

In fact, according to Randstand Talent Trends 2015, culture fit is one of the most important criteria for HR Leaders when assessing potential talent.

Meeting all these criteria is especially important because every company is anxious to stand out from the crowd and one way to do this is to hire the right talent in the shortest possible time. Before we get to referral recruitment, let’s look at the pros and cons of different modes of recruitment.

Job Portals

Benefits	Limitations
1. Good for mass hiring as they have access to large database. 2. Access to global market. 3. Ease of updating or posting jobs.	1. Volumes of junk resumes can be overwhelming. 2. No fitment analyses. 3. Choosing the best portal out of hundreds.

• If companies can find the right portal for recruitment, the costing would be less than 1% of the annual salaries of the new employees.
• Through job boards or career sites, its takes 39-55 days to close a position.

 

Recruitment Agencies

Benefits	Limitations
1. Huge database. 2. Applications are pre-screened.	1. Expensive recruitment fee. 2. Outdated list of job-seekers. 3. May not understand the industry and no fitment analyses.

• 5-30% is charged on annual salary of the candidates. However, there would be a replacement clause if the candidate leaves the job within 90 days of the joining.

 

Career Fairs and Campus Placements

Benefits	Limitations
1. Can capture passive candidates 2. Candidates with specific qualifications 3. Face-face to relations can be developed	1. Too many career fairs/ placement drives 2. Requires marketing 3. Difficult for small players to compete with major players

• Involves 1-5% cost on the candidates ‘ annual salary and sometimes even more.

 

Walk-Ins

Benefits	Limitations
1. Bulk recruitment and instant hiring can take place	1. Candidates may not be ideal

• It doesn’t cost much, sometimes for marketing, which would be 1-2% on the annual salary of the candidate.

 

Employee Referrals / Internal Referring

Benefits	Limitations
1. Job-seeker is known, adapts quickly to new job. 2. Cost-effective and turnaround time is 29-30 days.	1. Job posting exposure is limited.

• It involves just 1% of the cost of the annual salary of the individual.

 

From the data above, we can see that there are a couple of cost-effect ways for talent hunting but if an organisation is keen on culture fitment and quick turnaround time, it should give referral recruitment a shot.

How do referrals work for organisations?

Employees act as ‘super recruiters’ as they have tons of smart and spirited friends, most of them passive job-seekers.

Let’s do a little math. The average employee has around 200 friends on social media networks. And if the organisation has 200 employees, its potential reach can be up to 40,000 people.

That’s a super-quick way to let job-seekers know there are openings on the market. It sure beats traditional recruitment, hollow.

Here are some numbers that bolster the case for referral recruitment. According to LinkedIn, of the 1,000 professionals they studied, 57 per cent looked for opportunities on social and professional networks while 40 per cent scoured opportunities via word-of-mouth.

The Ernst & Young (E&Y) Talent Trends report indicates that 60 per cent of hiring takes place through social networks and 17 per cent through alumni groups.

According to the LinkedIn Talent Trends report (2015) 70 per cent of the global workforce is ‘passive’. Thus, employee referrals help tap into untapped talent.

[Passive job searching occurs when someone who is currently employed is open to hearing about new career opportunities, but does not actively seek out and apply to specific positions.]

Since the employee briefs friends and other prospective candidates about the job profile and other requirements, this results in a high applicant-to-conversion ratio.

Referred employees also sync with the organisation much faster than employees recruited via other sources. They have access to a lot of information and make a better culture fit.

Studies suggest that 46 per cent of referred employees stay with the company for more than a year, taking the pressure off the talent mapping team.

The company also saves on training costs as employees recruited through internal referrals adapt to an organisation’s work culture much faster than employees recruited through other sources.

Making It Official

Top IT firms Deloitte, IBM, Infosys, Accenture and TCS encourage employee referrals, and most of their positions are filled via this channel as their employees are rewarded on the basis of the level of the opening.

Even LinkedIn is changing its employee referral programme to get the best talent on board through this source. In January this year, the 20 referrals made by their employees led to 13 hires, and they plan to reward employees who are responsible for referrals on a quarterly basis.

Case Study: Tata Consultancy services amended a CRM model for its referral program which provides 24*7 referral help desk to encourage employee referrals. New candidates who are yet to join the organization can refer their previous company colleagues/friends. “Rapid Hire” process was a new initiative where resumes were collected and provided “on the spot” screening followed by preliminary evaluation and instant feedback. The hiring cost through referral hires during the first year are significantly lower than traditional hires i.e. 2.9% for referral hires and 8% for traditional hiring methods.

In a recent survey conducted by Smashfly, a popular recruitment marketing platform, 77 per cent of organisations on their portal had a formal referral programme; 32 per cent of new hires came from referrals and the quality of new recruits was much better than from other sources; 35 per cent were actively looking to start a referral programme; 50 per cent restricted their referral programmes to employees only, while 43 per cent extended their referral programmes beyond their employees, to alumni, contractors, customers, clients or vendors.

A few start-ups have done one better by allowing non-employees to refer job-seekers to their organisations. This instantly increases the number of super-recruiters, who are always in search of the right talent for these companies. These non-employees can be vendors, family members or consultants.

In conclusion, I wholeheartedly recommend that recruiters and talent acquisition heads work on referral programmes. You can start with internal hiring and slowly expand to other channels of referral. If you are able to close a good number of vacancies through referrals, then it’s pretty clear that you have developed a system that works.

Key points while implementing referral programmes

• Employees have to be briefed about the organisation’s recruitment rules and policies before they reach out to their network
• Employee Rewards have to be designed well and should suit your budget. Cash rewards are given by most companies, and don’t panic, employees don’t expect vast sums. You can also offer the option to donate your referral earnings to a social cause.

It’s advisable to ask fellow colleagues to keep an eye out for talent when they attend professional gatherings, seminars or industry conferences. This way, leaders and line managers can encourage an eye for talent-spotting.

It also means employee referral programmes will not turn into a mechanism where employees refer only people they already know really well.

Sources:

1. Smashfly Employee Referrals Study
2. Ernst & Young, LinkedIn and Randstand Reports
3. Image source: venues.meraevents

Author Bio: Karthik Raju loves to work for start-ups, enjoys food, cycling and networking. He likes learning new things and believes that there is no ending for learning. Connect with him on LinkedIn. Share your thoughts and queries for him in the comments section below.