Using Software to Increase Employee
Participation in Referral Programs
IndustryView | 2015

Employee referrals are a key component of human resources (HR) departments’ hiring efforts. Among other benefits, referred applicants are more likely to be hired and tend to stay at the company longer than non-referred candidates.

To determine what tactics encourage greater participation in employee referral programs, Software Advice conducted a survey of full-time employees at companies that have such programs. The results will help businesses utilize their applicant tracking system (ATS) or best-of-breed employee referral software to increase program participation.

Key Findings:

  1. Forty-five percent of survey respondents don’t participate in their current company’s employee referral program.
  2.  
  3. The majority of respondents who don’t participate (81 percent) say this is because they don’t know anyone who is a good fit for a position.
  4.  
  5. Tiered rewards (88 percent) and referral tracking (77 percent) are the employee referral program attributes most likely to positively impact participation.

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Introduction

By many measures, employee referrals are the best source for finding job candidates. Despite making up only 7 percent of job applications, employee referrals account for 40 percent of hires—more than any other source.

What’s more, referred candidates are hired more quickly than their non-referred counterparts, and cost less to recruit. They also tend to have longer tenures, which means HR departments don’t have to spend as much time filling vacant positions.

In short, employee referrals are vital. It’s no wonder then that nearly 70 percent of companies have a formal employee referral program, rewarding workers with cash or non-monetary rewards for participating. Beyond physical rewards, companies can also use software to encourage participation: Some ATSs and specialized employee referral solutions offer functionality that helps HR departments keep employees engaged.

To help employers struggling with participation, we surveyed employees at companies with referral programs to learn more about their motivations and how software can encourage them.

Nearly Half Don’t Participate in Their Employer’s Referral Program

Ideally, every employee would participate and refer candidates to their employer, but that’s simply not the case: Only 55 percent of respondents in our sample say they’ve referred someone for a job at their current company.

Employee Referral Program Participation

Employee Referral Program Participation

One reason for this near-split in program participation rates may be that HR departments simply aren’t effective in spreading the word about these programs.

According to Ryan Kohler, founder and chief innovation officer of ATS software vendor ApplicantPro, HR staff may be hesitant to market referral programs to employees if the software involved with the program is overly complex.

“With HR, where we find they struggle is when [the company rolls] out something that’s tech-related, and they’re not comfortable with how it works,” Kohler says. “[HR staff] don’t really talk about it as much as they should, because they don’t want to be asked questions about how it works, in case they don’t have the answers.”

As such, one simple way companies can increase participation is by implementing an easy-to-use software system for managing their program. According to HR thought leader Dr. John Sullivan, companies should aim for employee referrals to represent 50 percent of hires.

Most Employees Don’t Participate Because They Don’t Know Anyone to Refer

We asked the 45 percent of respondents who say they have not participated in their company’s employee referral program why this is the case. (They were allowed to choose multiple options from a list provided.)

By far, the most common reason is that employees don’t know anyone who is a good fit for a job opening (81 percent). Meanwhile, 20 percent say they refrain from participating because their employer doesn’t offer a sufficient reward for referrals.

Top Reasons Employees Don’t Participate in Referral Programs

Top Reasons Employees Don’t Participate in Referral Programs

What employers and employees may not realize is that, with the prevalence of social media, participation doesn’t require one to know potential candidates off the top of their heads. Companies that don’t encourage employees to share job listings on their social media accounts—and reward them appropriately for doing so—are missing out on a big opportunity for referral hires.

“Employers have to see employees not [only] as people who might immediately know somebody that’s suitable—they have to see them as marketing people,” explains Nick Leigh-Morgan, founder of ATS software vendor iKrut.

“When companies put their referral programs together, they have to stress to their employees that, through the power of social media, they might actually recruit somebody they’ve never met and never heard of and still get the reward.”

That being said, employees may be reluctant to share job listings on social media if the process is cumbersome. For example, a company may send out an email with a list of new vacancies they’re trying to fill, asking if employees can suggest anybody for the position. If an employee wants to share any of those listings on social media, they have to write the post themselves, link to the right position and repeat this process for every social media account they have—an inefficient process that many might not want to bother with.

But software makes this process easy by reducing the time to complete the process to just a few seconds. In many ATSs, employees are provided with their own online portal, which they can use to connect to their Facebook, Twitter, LinkedIn accounts and so on. From there, they can share open job listings to selected social media accounts with one click. Employees can also choose to automatically share job listings at a predetermined frequency.

Even if an employee’s social media “friend” or connection doesn’t apply, it’s possible that person will share the posting on their own account, and one of their connections will apply for the position. In a case like this, software can track the referral back to the original poster so recruiters can give a referral bonus to the appropriate employee.

Money Is the Most Common and Incentivizing Reward

We asked respondents how they are rewarded for referrals, as well as what type of reward would most encourage them to participate in their company’s referral program. While 89 percent say they would be most encouraged by money, just 51 percent of respondents’ companies offer this reward.

Top Referral Program Rewards

Top Referral Program Rewards

Despite these findings, companies needn’t worry that vast sums of money are required to effectively entice referrals. Studies show that most referral bonuses fall between $500 and $2,499, depending on the position. By factoring in their average cost per hire, companies can find the referral bonus amount that achieves the maximum return on investment. However, Kohler notes that HR departments should not be afraid to budget a big reward for a position if they’re having trouble filling it.

“It may be uncomfortable for HR to pay out $5,000 for a new programming hire, because $5,000 is a lot of money to an HR person,” Kohler says. “But the head of programming would [likely] pay $5,000 in a second for a really good programmer. It really is a supply-and-demand thing.”

There’s also the issue of how the reward is paid out. A lot of companies opt for a probationary period, in which employees are only awarded a referral bonus if the referral stays at the company for a certain amount of time. While this can ensure that rewards are only doled out for truly successful hires, it can also discourage employee participation if they have to wait a long time for rewards.

A compromise is to segment the reward based on the hire’s longevity: For example, if the hire lasts three weeks, the referring employee gets 30 percent of the reward; seven weeks equates to a 70 percent reward, and so on.

If companies are really strapped for cash, they can implement a program where employees who submit referrals are rewarded with entry into a raffle, where only one winner is selected annually to help distribute the cost. Companies can also use their own merchandise or products to encourage participation, especially at smaller establishments—for example, a restaurant might offer a free meal.

Tiered Rewards Would Most Positively Impact Participation

Finally, we asked respondents how certain software-enabled referral program attributes would impact their participation. Eighty-eight percent of respondents say they would be “significantly” or “moderately” more likely to participate if a tiered reward system was implemented—the highest of any attribute.

Impact of Referral Program Attributes on Likelihood to Participate

Impact of Referral Program Attributes on Likelihood to Participate

A majority of respondents say each of the attributes listed would make them “more likely,” to some degree, to participate in their company’s program. Here, we describe each program attribute and how software can play a role:

Tiered Rewards

Since job positions are not always equal, a tiered reward system allocates different monetary amounts to employees based on the skills or experience the job opening requires. An example would be rewarding $200 for an entry-level referral and $2,000 for a managerial-level referral.

Such a system can be a better use of funds for hard-to-fill positions than more traditional methods (e.g., advertising or career fairs), as referral awards can potentially save money and engage employees simultaneously. To implement this type of system, recruiters can simply assign separate values to each job opening in their ATS.

“Users can control rewards as they post each job,” Kohler explains. “They can set it based on supply and demand, so HR might only pay $50 as a referral reward because they think they’re going to get a lot of applicants. On the other hand, [some companies] pay $5,000 for certain vacancies.”

Referral Tracking

Employees are often invested in the status of referrals they make and the accompanying reward they expect to receive. As such, they may become frustrated if HR departments are slow to update them.

Software can automate the communication process to keep employees in the loop. By logging in to their dedicated portal, employees can view where applicants they’ve referred are in the hiring process in real time, as recruiters update their status. Employees can also keep track of the reward they’ll receive and whether it’s been paid.

Social Media Sharing

This “shotgun blast” approach, as described earlier in the report, allows employees to share job listings with everyone on their social media accounts with one click. Besides tracking every referral back to the original employee, many software systems also track the referral medium so recruiters can learn which social media platforms are the most successful.

Summary Report iCIMS Recruit

Source summary report in iCIMS Recruit

“I can know the name of the employee that referred [a candidate], but that doesn’t help me improve how we’re engaging those employees and maximizing profits,” Kohler explains. “I need to know where the employees are sharing those links that get us the most traffic, the most applicants and the most hires.”

Candidate Recommendations

To augment social media sharing and help employees find people they may not have considered for a vacancy, some referral and ATS systems include candidate-recommendation functionality. For example, employers can set up keyword criteria to find potential applicants with pertinent skills among their employees’ social media connections. Employees can then opt-in to a recurring email that will recommend candidates in their social circles who would be a good fit for vacant positions.

Through this functionality, employees may find that some of their friends are better fits than they thought, and can then reach out for a referral opportunity.

According to Kohler, there are pros and cons to the wide net of social media sharing and the laser-focus of recommended candidates, but at the end of the day, “the right way to do it is to have both.”

Gamification

Although many are predicting the end of gamification in the workplace, 40 percent of respondents in our survey say they would be “significantly more likely” to participate in employee referrals if the program was gamified.

With gamification, points are allotted for employee participation and rewards are given out based on monthly, quarterly or yearly points leaders. Many ATSs can track accrued points as well as monetary rewards to help implement this kind of system.

staged leaderboard system

Example of a staged leaderboard system for employee referrals

And points don’t only have to reward only leaders: By having one point equal one entry in a prize drawing, for example, everyone can feel like they have a chance to win by participating. To further encourage participation, companies can also offer rewards for every referral an employee brings in, and how far that referral gets in the hiring process—not just for a successful hire.

In fact, “the worst thing you can do is just do it all [based] on hire,” Leigh-Morgan says. “People will not participate, because the odds of referring a successful hire are pretty slim. If an employee knows they have a chance of winning a paid holiday just for sharing a vacancy on social media, what have they got to lose?”

Mobile Accessibility

Employees can be limited in accessing the above software functionality if they can only use the system via desktop computer. But many ATS and referral platforms include mobile integration, which allows employees to share job listings, track referral statuses and more on their smartphone or tablet. And with more and more employees using their own mobile devices for work after hours, participating in employee referrals can become as routine as checking email.

Conclusions

Employee referrals are a quality source for hiring, which means HR departments should encourage every employee to get involved. Software can be a big help in this endeavor. On the company side, HR departments can implement tiered rewards and gamification elements through their employee referral program to encourage participation.

On the employee side, one-click social sharing, referral tracking, recommended candidates and mobile integration can make it easier than ever to refer candidates and keep track of their progress.

That said, software can only do so much. Companies must offer sufficient rewards—most notably, cash—in order to entice employees to participate. They must also make sure that awareness of referral programs is adequately spread.

“Companies have to drive it internally,” Leigh-Morgan explains. “We give you the software, but if you don’t have the referral program in place, it’s not going to work.”

Demographics

Most respondents in our survey come from the retail sector, and work for an employer with less than $10 million in annual revenue and less than 50 employees.

  • Respondents by Industry

    Respondents by Industry
  • By Annual Revenue: Respondents’ Company Size

    By Annual Revenue: Respondents’ Company Size
  • By Number of Employees: Respondents’ Company Size

    By Number of Employees: Respondents’ Company Size

Methodology

To collect the data in this report, we conducted a seven-day online survey of 18 questions, and gathered 174 responses from random full-time employees in North America. We screened our sample to only include respondents who work at companies with an employee referral program. Software Advice performed and funded this research independently.

Results are representative of our survey sample, not necessarily the population as a whole. Sources attributed and products referenced in this article may or may not represent client vendors of Software Advice, but vendor status is never used as a basis for selection. Expert commentary solely represents the views of the individual. Chart values are rounded to the nearest whole number.

If you have comments or would like to obtain access to any of the charts above, please contact brianwestfall@softwareadvice.com.


Brian Westfall

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