Recruiting with a little help from my friends
Many employers are realising the benefits of using their current workforce to help fill vacancies. We talk to some of them with well-established "refer-a-friend" schemes, and explore some of the issues concerned with their design and operation.
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Learning points Relying less on indirect recruitment channels and more on direct recruitment channels, such as refer-a-friend schemes, can help alleviate the pressure of recruitment costs on organisations. Aside from being a more cost-effective option, there are other ways in which a well-designed employee referral programme can benefit employers, such as the recommendation of good-quality candidates who have a more realistic impression of the recruiting organisation. An ongoing promotional campaign for the referral scheme is key to its success. Good internal publicity, such as intranet postings, email alerts for new vacancies, posters and company newsletter items, keeps the scheme alive in employees' minds. Employers using referral schemes should ensure that they do not run counter to equal opportunities considerations. |
Whether intentionally or not, informal recruitment methods have always helped employers to fill vacancies. The Chartered Institute of Personnel and Development's (CIPD's) 2003 recruitment and retention survey1 found that word-of-mouth recruitment was used by well over half of all organisations.
Much of the widespread use of word-of-mouth recruitment happens by chance. But some employers are consciously encouraging networking by their staff as a means of filling vacancies, by setting up an employee referral programme.
In today's world, where acute skills shortages and cost constraints on recruitment often exist side by side, some organisations find that offering their staff a financial incentive to recommend a recruit can offer a cost-effective way forward.
The CIPD survey revealed that 11.6% of employers had introduced payments to staff as part of a referral scheme over the previous 12 months. A further 15% had improved their existing approach to rewarding staff for successful referrals.
Maximising potential
Although many organisations now have in place a "refer-a-friend" scheme, the proportion of employers actively promoting them seems to be relatively low.
A survey of City investment banks by Penna Consulting in 2003 found that the majority of employers were failing to make the most of their employee referral schemes. The research estimated that organisations could save up to £6,000 per hire by using such a scheme. Although 80% of surveyed firms had a referral programme in place, only 12% sourced candidates through them.
Richard Finn, managing director at Penna, says that referral schemes are a potentially valuable recruitment tool that can be a mechanism to help organisations switch from reliance on indirect to direct recruitment channels.
"Organisations need to consider their overall recruitment strategy and what channels represent the most effective cost/value ratio," he recommends. "Methods such as utilising employees' existing skills to move them to new jobs, providing career development for staff and using their network of contacts to attract new hires are the most effective additions to traditional recruitment methods."
Building on success
Coventry Building Society fills nearly a quarter of its posts through its "Recommend-a-friend" scheme. The building society had always received a number of ad-hoc applications from friends and relatives of existing staff and, five years ago, itmade a determined effort to tap into what it viewed as a potentially valuable source of future recruits.
"We decided to put the scheme on a more professional and formal footing and welcome both speculative applications and interest in specific job vacancies," says Helen Barker, HR operations manager. "The scheme is now very successful and, of the 109 vacancies filled to date in 2004, 24 were employee referrals."
Guildford-based Royal Surrey County Hospital NHS Trust has operated its "Recruit-a-friend" scheme for more than five years now, and has awarded the £250 finder's fee to 128 employees since its inception. The person referred must work for a six-month qualifying period before the payment is made.
The introduction
of the scheme was influenced by the serious recruitment and retention difficulties
in some hard-to-fill NHS posts. "The cost of living in
Setting the bounty
The overwhelming majority of "refer-a-friend" schemes pay out a set bounty payment, typically between £300 and £500 for each referral, according to the CIPD survey. Richard Finn of Penna Consulting believes that it is for the individual employer to determine what amount is suitable, taking account of factors such as its industry, sector and marketplace.
Andrew Young, managing director of HR and employee communications agency Thirty Three, believes that the level of incentive offered by the employer is crucial to the effectiveness of a referral programme.
"Some organisations expect staff to go to the trouble of encouraging friends and family to apply for work out of the goodness of their hearts, without a meaningful financial incentive," he says. "It is doubtful even whether a bounty of a couple of hundred pounds is enough, although, of course, whether the organisation is a charity or a major management consultancy has a bearing on the level of reward."
According to Andrew Young, the more senior or specialist the role, the bigger the bounty payment should be. As he says: "Some companies have a sliding scale that sets a benchmark payment according to job level. The financial incentive has to be appropriate to the earnings of the referring employee or it will not motivate the majority of staff."
Unlike most schemes, referrals at Coventry Building Society follow this approach. The Society offers three different levels of payment. Most vacancies attract a £300 bonus for a successful recommendation on completion of the new employee's six-month probation period.
However, more specialist jobs that require the possession of a specific financial qualification attract a £400 finder's fee, while £50 is paid to the referring employee for recommendations to the recently created "Saturday-only" customer service assistant role.
The most effective size and type of reward is a matter for each individual employer, but recruiting organisations could potentially benefit from considering ways of being more creative in encouraging their staff's interest in making referrals.
Creative rewards
Capital Consulting
is a recruitment process outsourcing and HR consultancy, specialising in
recruitment best practice. As well as advising and supplying client
organisations with effective resourcing solutions,
the company launched its own employee referral scheme in February 2004.
Instead of the typical cash bonus for a successful referral, Capital has developed a more distinctive approach, called "The Capital Mini challenge". If an employee's referral is subsequently hired, the member of staff is given a Mini Cooper key ring with their name and the name of their referral on it. A grand prize draw at the staff Christmas party determines who drives off with the new motor.
In designing the scheme, Capital felt that it was important to introduce an incentive that was a bit different and created an atmosphere of excitement among its 70-plus staff.
"A key part of our approach as a consultancy is to help clients to introduce innovative recruitment solutions and avoid the expense of paying agency hiring fees," explains Jeremy Tipper, managing director. "In developing our own employee referral programme, we therefore had to practise what we preach and design a scheme that was original and grabbed people's attention."
On the plus side
Various pieces of research have indicated that informal means of recruitment often yield a better-qualified and more suitable pool of candidates than their formal and more traditional counterparts. Some commentators and users of "refer-a-friend" schemes also point to a correlation between informal recruitment and a reduced level of staff turnover among employees hired in this way.
It is certainly true that there is a strong element of self-selection, where candidates make the first move in the process. It is also undoubtedly the case that someone referred to the organisation through a friend or family is likely to have gleaned a considerable amount of "insider knowledge" about its culture, values and management style - as well as the job itself. If that person is still keen enough to apply to work for the organisation, having had the benefit of what could well be a realistic preview of the job, their application is likely to be a serious one. It is this factor that probably accounts for any enhanced retention profile among employees who had been referred by an existing employee.
Richard Finn of Penna Consulting believes that there are other advantages associated with the use of referral schemes, not least of which is the potential cost saving to the recruiting organisation.
"They are cheap, because most referrals come with a good filter and the organisation is saving money on the screening of candidates," he says. "They also provide the organisation with a real performance measure of their 'employee value proposition', as individual employees are not going to recommend people to work for an organisation they do not rate highly themselves."
Helen Barker of Coventry Building Society says that cost saving is a major advantage associated with its scheme, but there are also other significant benefits. "A scheme like this requires virtually no start-up costs and is self-financing because, if there is no successful referral, no finder's fee is paid and it is much more cost-effective than using advertising or recruitment agencies," she says.
"An almost equally important consideration, however, is the high-quality candidates generated by the scheme. It's a case of 'like for like' - we have great people working for us who are likely to have friends with the same outlook, and are unlikely to recommend someone who will let them down."
Value for money
Capital Consulting is also quick to point out that an employee referral programme can represent value for money. Although a brand new Mini Cooper does not come cheap - around £13,000 - when balanced against the cost of more traditional and expensive recruitment methods, or the more typical approach of paying out a cash sum every time an employee's referral is employed, it could represent a cost-effective alternative.
"In the seven weeks since the Capital scheme has been up and running, we have had nine referrals and we have recruited six of them," says Jeremy Tipper. "We expect to make no less than 25 appointments in the first year, which will represent a huge saving on advertising and/or agency costs."
Adopting a more economical recruitment strategy is not the only reason that Capital has introduced its "Mini challenge". Apart from reflecting and supporting the consultancy's innovative approach to acquiring talent, Jeremy Tipper believes that referral programmes have other advantages.
"Employee referral schemes have an in-built quality control mechanism because it is unlikely that someone is going to refer a person they themselves would not want to work with," he believes. "In this way, a scheme can be self-perpetuating, particularly if the organisation already has a good bunch of people working for it."
Quality control
Many organisations cite the high quality of recommended candidates as the rationale for using employee referral schemes. As well as the natural filtering role that existing employees play in judging whether an acquaintance is suitable for the recruiting organisation - and visa versa - an employer can design a scheme that improves the quality of potential recruits.
The most typical built-in quality check takes the form of either a delayed or phased payment system, where the referring employee does not receive part or all of the bounty bonus until their "friend" has been in post for a specified period.
There are other mechanisms that can be put in place to ensure a consistently high standard of candidate referrals, as evidenced by the Nationwide Building Society's employee-referral programme, which has recently been revamped and relaunched across the group.
Kirsty Hughes, personnel consultant at Nationwide, explains: "Previously, we ran two schemes but the new scheme enables us to have one consistent approach for the organisation." Nationwide's "People like us" scheme offers atwo-part payment to employees who have recommended someone who is recruited by Nationwide. The first payment of £150 is made after the new starter has been in the post for two weeks and a final installment of £350 is awarded on successful completion of the recruit's six-month probationary period.
"We felt that it was important in designing the new scheme that quality checks were put in place, and the reward is for good-quality referrals," explains Kirsty Hughes. "Employees are encouraged to think about the person they are recommending in the context of our 'PRIDE' values, which stand for desired behaviours such as 'rise to the challenge' and 'inspire confidence'."
In common with most other schemes, referrals can now only be made for specific vacancies at the Nationwide. This means that referring employees have to think carefully about whether or not their friend possesses the relevant skills and knowledge for the job. The previous referral schemes allowed staff to put people forward for customer service jobs on an "as-and-when" basis, regardless of whether or not there was a specific vacancy.
According to Kirsty Hughes, linking a recommendation to an explicit job means that a more measured approach has to be taken by the referring employee in considering the person's suitability for the job. Another check put in place to avoid being inundated with recommendations from the same employee is that a maximum of three rewards can be paid to an individual in one calendar year.
Promoting the scheme
It is generally viewed that the success of employee referral programmes relies heavily on effective internal publicity. Andrew Young of Thirty Three believes that the way in which some organisations promote their schemes represents a major factor contributing to their success or failure.
"Many companies are increasing their commitment to such schemes, in recognition of their potential cost-effectiveness and success in identifying high-calibre recruits, but think they can launch a scheme with a one-off bit of publicity," he says. "This approach will produce only a short-term 'spike' in referrals. An ongoing communications programme is needed to keep the scheme at the front of people's minds."
Andrew Young suggests that a range of communication techniques should be used by an employer to promote its referral scheme, such as emails, letters, cards, the company intranet and posters.
Work that his agency has undertaken with various organisations includes promoting examples of what employees have done with their bonus as a way of personalising the scheme and showing that it works.
As part of a recent project to refresh the referral programme run by Wanadoo, the internet-service provider formerly called Freeserve, a cinema ticket promotion was used. A pair of free cinema tickets was given to any employee making a recommendation if their referral was invited for interview, in addition to the bigger financial incentive awarded for a successful job appointment. The initiative has so far proved very successful, with a big boost in the number of applications.
Nationwide has a comprehensive, ongoing communication strategy in place to promote its employee referral scheme. For the relaunch, posters were sent out to all the branches and business areas, every employee received a pen and block of post-it notes advertising the scheme, and all employees were also alerted by email. Staff who themselves joined the organisation through the recommendation of a friend were encouraged to hand out promotional material and talk about the programme.
Business cards directing employees to current job vacancies and providing an internet link have also been circulated across the Nationwide group. "This has helped to promote the scheme and encourage individuals to pass the card to their potential referral candidates to find out more about Nationwide," says Kirsty Hughes.
"We have considered a variety of different ways to publicise the scheme. In April [2004], for example, we promoted the scheme to employees via their monthly payslips and, in August, our company newsletter will include a feature on it." The new referral programme is still in its early days, and the recruitment team has put the metrics in place to monitor its future success. So far, the response has been very positive and the Society has just made its first placement.
In 2003, Royal Surrey County Hospital NHS Trust rebranded its employee referral scheme under the NHS "Improving working lives" (IWL) initiative, which sets a model of good HR practice. All documentation relating to "Recruit a friend" therefore carries the IWL logo and the scheme is also publicised internally through the trust's work in this area. For example, every month, one element of IWL is highlighted and promotional material displayed on the IWL noticeboard.
Publicity and good communication are also considered crucial in ensuring a good number of future referrals for the Capital Consulting scheme. The "Capital Mini challenge" was launched at one of the company's quarterly "off-site days", when the whole team gathers for a business update. Capital also ensures that feedback is given to all candidates referred through the scheme, whether successful or not, and also makes a point of giving the referring employee an explanation if a job offer is not made.
Feedback to employees on the progress of their referrals is an important detail that should not be overlooked. There are some computer packages on the market that allow the referrer to track how their referrals are doing in the recruitment process. Keeping in touch with the referring employee need not be so hi-tech, but can represent a significant amount of extra work if a high number of candidates are sourced via the existing workforce.
A diplomatic approach will also be needed if the employee's "friend" is not made an offer of employment. Although acknowledging referrals and giving feedback can seem like an administrative burden, communication is vital to maintaining enthusiasm for a scheme.
A word of caution
Where employers devote time and resources to operating and promoting employee referral schemes, they are typically enthusiastic about the benefits that such schemes bring to the organisation's resourcing strategy. It is perhaps the case that, because the majority of employers operates such schemes in name only - as the Penna research shows - some studies indicate that many employers do not favour informal recruitment. In the 2003 CIPD survey, 10.5% of respondents indicated that word-of-mouth recruitment was an effective source for attracting locally recruited staff, while only 3.7% thought so for international recruitment.
The major criticism directed at less formal recruitment methods, such as referral programmes, is that they reach only a limited target audience. The assumption is that existing employees are likely to recommend people that are similar to themselves, producing a workforce with little variation. The risk is that a group of candidates found through a referral scheme is unlikely to be representative of the wider community, in contradiction to the increasingly diverse nature of the labour market and consumer base.
As Acas, the employment relations experts, warns in its advisory recruitment booklet2: "Whilst this [introduction via existing employees or through an employer's network] may be economical, it is likely to lead to a much smaller pool of suitable applicants and does not normally satisfy equal opportunities requirements because any imbalance in the workforce may be perpetuated. The Commission for Racial Equality and the Equal Opportunities Commission both warn against such practices, where the workforce is predominantly one sex or racial group."
Jeremy Tipper is not convinced by some of the less positive commentary on refer-a-friend schemes, such as the criticism that they run counter to encouraging a diverse workforce. "The anti-diversity argument assumes a prejudice within the organisation," he says. "Employee-referral programmes can encourage a broad mix of job applicants. For example, at Capital we have people working here from every continent and across a broad age spectrum. It, therefore, doesn't follow that we will only have one type of person referred to us by employees."
Helen Barker also believes that there is no problem, providing an organisation has a diverse workforce and encourages all parts of it to use any referral scheme. "It is important to be aware of any potential discrimination risk for such a scheme, and we point this out under our recruitment and selection training for managers," she explains. "I am confident that Coventry Building Society attracts applications generally for its vacancies from diverse groups, who as employees in turn encourage other people from different backgrounds to come and work for us."
As part of its 2003 recruitment survey, the CIPD ran a focus group to explore some of its survey findings in more depth. Interestingly, focus group members commented that the high figure found in the survey for employers' use of "word of mouth" as a source of applicants does not necessarily mean that organisations are not following good equal opportunities practices.
It was pointed out that many employers use "additional positive-action schemes" during their normal recruiting campaigns to improve workforce diversity, by offering a financial reward to staff who "recommend a friend". The survey noted that, in some cases, "payments were made if that friend improved the diversity of the workforce, was recruited and remained with the organisation for a minimum time."
There are other factors to bear in mind in the
design and operation of referral programmes. One potential pitfall is that the
financial incentive offered under most schemes can encourage over-enthusiasm on
the part of some staff, resulting in a deluge of largely unsuitable referrals.
One simple way around this is to limit the number of recommendations that a
single employee can make within a specified timescale.
Richard Finn cautions employers to treat candidates who have been sourced through word-of-mouth referrals in the same way as other applicants, and put them through the organisation's standard selection process.
As he says: "Candidates who have been referred by existing employees do not necessarily have to be assessed for cultural and personal fit, but the recruiter does need to ensure that they have the requisite competencies. An employer should not stop selecting just because they have attracted the applicant by informal means. It is also important that the employer does not make an assumption that induction is not important just because the new recruit already knows someone within the organisation."
1.Recruitment and retention 2003, Chartered Institute of Personnel and Development, 2003, www.cipd.co.uk.
2. Recruitment and induction, Acas, www.acas.org.uk.
This article was written by Rachel Suff, a freelance employment researcher and writer, rmsuff@dsl.pipex.com.
