Employee referrals used to be considered a somewhat risky practice — an invitation to nepotism and favoritism. But today employee referrals are considered one of the most reliable recruiting sources. Few employees would risk their own reputation by recommending a friend or relative who may turn out to be a source of embarrassment.
No surprise, then, that more and more companies today have instituted employee referral programs, with rewards (extra vacation days, trips, cash bonuses, or other goodies) for employees who recommend a person you eventually hire and who stays with the company for a specific period. Employee referrals can be especially effective in helping to locate candidates for critical or hard-to-fill positions.
As with other elements of your recruiting program, keep in mind that your employee referral program can pose legal issues in the areas of discrimination and wage and hour law. Consult an experienced attorney for assistance with analyzing the legal risks of your recruiting program.
Before you launch a program, make sure that you consider all the ramifications and establish a systematic process for administering it. Here are some questions you need to answer:
Is everyone eligible to receive a referral award, or are certain positions not eligible, such as executives, officers, board members, recruiters, and hiring managers for their own position?
What incentives are you going to offer to the employee who refers someone? Are you going to vary the incentives based on the importance of the job?
How long does any referred employee need to remain with your company before the person who makes the referral becomes eligible for the incentive? (The norm in most companies is three to six months.)
What procedure must any employee who’s making a referral follow?
After you set up an employee referral program, don’t keep it a secret. Publicize it every way you can — through posters, e-mails, and newsletters, for example. Your objective is to generate as many quality referrals as possible, and reminders always help. Finally, make sure that everyone knows when an employee receives a bonus for a referral.