Description

Business Impacts of Referral Programs

Great quality of candidates
• Produce employees who are 20-30% more productive on the job.
MIT Sloan School of Management Professor Emilio J. Castilla discovered that employees recruited through employee referral programs can have significant performance dif-ferentials from employees who were sourced via other channels. While Professor Cas-tilla’s research focused on a single call center, his findings are similar to those of a growing list of companies including FirstMerit Bank, Tenet Healthcare, and Allstate, to name a few. In 2006, Booz Allen Hamilton surveyed 73 major employers, and 88% found that hires made via employee referral performed better on the job than candi-dates hired via other sources as measured by their companies’ performance appraisal systems. According to Dr. John Sullivan the minimum and maximum observed data points between employee referral program hires for employees meeting minimum pro-ductivity by end of probation period is 92-100% compared with 74% for hires by all other sources.
• Produce employees who have 2x higher retention rates.
Professor Castilla also noted that employees who were recruited via employee referral programs also stayed longer than employees recruited through other sources, provid-ing the employee who referred them did not separate. This is a trend that many cor-porate program managers have also noticed in such companies as SRA International, PricewaterhouseCoopers, Allstate, Texas Instruments, and Southwest Airlines. Accord-ing to Dr. John Sullivan employee referral program hires results in 9-21% voluntary turnover in 3 years compared with 39% for hires by all other sources.
• Produce 15-30x less non-qualified applicants.
Baptist Healthcare and Allstate have both found that referrals produce a lower per-centage of “non-qualified” applicants, a characteristic that reduces the screening de-lay inherent in most recruiting systems and enables recruiters to focus on getting the right candidates in front of the right managers in the shortest possible time. According to Dr. John Sullivan employee referral program hires results in 22-58% of applicants that meet job requirements compared less than 2% for hires by all other sources.
Lower costs
• Reduce the burden on recruiting departments.
It is not uncommon for managed referral programs to produce more than 50 percent of an organization’s total new hires. Because managed programs focus on tuning the pro-gram to produce only qualified applicants, a great deal of the labor that the recruiting department would usually expend screening and sorting applicants is eliminated.
• Produce a high ROI (>500%).
In making the business case for implementing an employee referral program, Dr. John Sullivan discovered that the ROI for an employee referral program could be well over 500 percent if the performance differential could be quantified and included. Obtain-ing that level of ROI did not include branding value (employees talking positively to strangers about the firm and its products). The vice president of marketing of Agilent said that the value of employees talking up the company to friends, colleagues, and family to a company the size of Agilent could top $100 million. Such a return would have produced an ROI in excess of 3,000 percent.
Greater speed and satisfaction
• Produce hires more quickly than alternate sources.
Employee referral programs when managed properly produce candidates that are, for the most part, prescreened for “culture” and skills fit by the employee. In organiza-tions that tag applicants with source of hire, the impact of this characteristic is tell-ing. Such applicants require less rigorous formal screening and therefore advance through recruitment processes much more quickly than candidates from other sources. European communications giant Vodafone found that by focusing recruiting activities on employment brand management and employee referral, the averag