Do You Have an ERRS?: Hire the Best with an Employee Referral Reward System

A couple of weeks before any speaking engagement, I distribute a 10-question survey to the meeting participants so I am well prepared to cover their most pressing concerns. One of the questions I ask is: "What is your best source for new employees?" Some of the possible answers are: "billboards, internal promotion, the Internet, job fairs, newspapers, referrals, schools, signage, and walk-ins."

I've been conducting these surveys for years, and the 541 hiring managers and franchisees surveyed to date report that employee referrals generate the best candidates. These results are right in line with the innumerable surveys that show employee referrals are the only recruiting tool that consistently delivers high-quality workers who stay on board longer in every industry across the board. In fact, world-class organizations such as Southwest Airlines, Microsoft, and Disney reportedly attain from 50 percent to 70 percent of their annual new hires exclusively through employee referrals.

The experience of most employers, however, is like that of a chain of convenience stores I worked with two years ago. Turnover was running at 270 percent, and the average new hire lasted fewer than 60 days. When we broke down the data we found that although they were only a small percentage of the workforce, the employee-referred hires stayed on the job at least three times longer, for the following reasons:

1. Employees won't refer people who they don't think will be a good fit. You'll do your normal screening and interview, of course, but a referred applicant has already cleared one level of insider prescreening.
2. People know what they are getting into. Your employees tell their friends much more detailed information about the job and working conditions than you ever would. When applicants know up front what's great and what's not, there's a much higher likelihood they'll stay on the job longer.
3. People like to work with friends. The prospect of working with someone the applicant already knows and likes makes the job more attractive by far than any other.
4. People are always interested in getting a better job. But they want it to fall in their lap. Most employee-referred applicants are already working and are only passive job seekers at best. They won't spend a lot of time browsing job boards or noticing your "Help Wanted" signs. But if a friend thinks they'd be a good fit, they are much more likely to apply.

Setting up an ERRS

The best way to generate employee referrals is to set up an Employee Referral Reward System (ERRS), because it will deliver a fantastic ROI compared with other recruiting tools. One recent survey reported the cost per hire for a non-exempt position as $2,100 through print ads, $1,000 by means of a job fair, and $392 through an ERRS. Your numbers and the tools you use may vary, but an ERRS will still deliver the best ROI, especially when you factor in applicant quality and longevity.

An ERRS also will improve morale and productivity because the referring employee has a vested interest in seeing the employee they referred succeed, and the referred employee doesn't want to let a friend down. The best systems or programs I've seen have four things in common:

1. Commitment. For any referral program to be successful, senior management must buy in and support it consistently. They need to send a clear message that it's everyone's job to actively search for new team members. I've seen far too many programs kick off with a lot of fanfare, only to lose steam or disappear entirely when personnel change or a new program takes the spotlight. Top management has to walk the talk. You can't just put it out there and hope it will fly.
2. Marketing. The ERRS must be constantly promoted. In some instances, weekly "hot job" emails that also list employees who have made successful referrals keep things moving. I've also seen a CEO routinely email congratulations to all those who took the time to make referrals. Make sure it's on the agenda of every staff meeting. Announce openings, congratulate people, and award prizes or simply give a round of applause. Keep putting new life into the program.
3. Incentives. Although some companies do give cash, I'm not a big fan of that. Cash gets spent on something soon forgotten, or is used to pay bills. Think about things like gift certificates, lunch with the boss, time off, or movie tickets. I've also seen drawings for one big prize (a car, big screen TV, or cruise) where employees get one entry for each successful referral. And it's always a good idea to reward every employee for every single referral--no matter what the outcome--with something like a personal thank you, coffee mug, or first choice of shifts for a week. Do not make the mistake of giving the awards only after the newly hired employee has been on board for a certain number of days or months. The only way to reinforce good behavior is to reward it on the spot, not 30, 60, or 90 days later.
4. Ease + Efficiency = Effectiveness. This is where most ERRS programs go wrong and die a slow and painful death. To make your system deliver, you must make sure:
1. Referred candidates get top priority and there is an efficient system that lets the referring employee know how things are going. This is a very important matter to both your employee and the applicant. Kid gloves are called for.
2. Whenever there's a job opening, everyone knows at once by email, bulletin boards, staff meetings, etc.
3. There's an easy way for employees to refer people and make sure they get the credit for it. Some companies have created virtual postcards that employees can send to friends. Many have online referral forms. An easy way is to provide "referral cards" where an employee can fill in their name and give it to the potential candidate.
4. No hard feelings result when referrals are not hired. Good communications can ward this off.

Whether or not you set up an ERRS right now, you can still make employee referrals work for you. Just make it a point every month or two to ask your best people: "Do you know anyone in your (school, church, class, or neighborhood) who might be interested in working with us as a (job title)?" Whether you keep it simple like this or set up a full-blown ERRS, it's the proven, best way to build your dream team.

Mel Kleiman, CSP, president of Humetrics, is an internationally recognized consultant, keynote speaker, and trainer on strategies for hiring and retaining the best hourly employees. Humetrics, founded in 1986, is a leading developer of recruiting, selection, and retention system training processes and tools. He also is the author of five books, including the best-selling Hire Tough, Manage Easy. Visit his daily blog at www.melkleiman.com or contact him at 713-771-4401 or mel@melkleiman.com.