Employee referral program should not only be an effective tool for building a rich candidate pipeline, but they ought to be one of the best tools. Fundamentally more cost effective than most other options, they have the significant advantage that candidates enter the pipeline pre-screened by current employees.

Unfortunately, these programs regularly underperform, and most companies try to fix the wrong things in their efforts to capture the inherent opportunity. Many companies ignore or fail to mitigate the risks that referral programs create for employees.

Submitting a candidate referral exposes the employee up to two important risks:

  1. The employee’s relationship with the candidate becomes tarnished by the candidate’s experience during the recruiting process
  2. The employee’s standing within the company becomes tarnished by how the candidate reflects on the employee during the recruiting process

When employees refer candidates, they entrust the employer with the power to influence their personal relationships with the recommended candidates. Especially for senior people who have often invested many years in these relationships, this is no trivial exercise. The employee takes a material risk that the company will treat the candidate poorly and that unpleasant experience will taint or even destroy the relationship between the employee and the candidate.

Often this relationship is worth more to the employee than the value of the referral reward. This imbalance of risk and reward is further shifted towards risk since receiving any compensation is wholly dependent on the candidate earning and accepting a position in the company.

Furthermore, there is also the risk (though typically smaller) that the candidate in some way hurts the employee’s standing in the company during the process. Why should any company expect employees to take on such high accumulation of risk?

Throwing money at the problem won’t fix it. Many companies assume that by increasing the value of the referral reward, they can increase success. While many companies that do this do experience see increased participation, that increase is rarely for the reasons they want. A higher reward does not change the risk to the employee-candidate relationship or the probability of payout. However, this larger reward may now exceed the probability-adjusted risk of the employee’s standing in the company being tarnished by the candidate given both the low probability and low potential impact if realized.

In this situation, employees become willing to submit referrals for people with whom the impact of the relationship being soured would be low. Employees submit more referrals but refer people that cannot so thoroughly or credibly endorse. The value to the company of referral candidates being inherently “pre-screened” by the employees evaporates.

A company’s goal needs to be increasing “quality participation.” It needs referrals of pre-screened candidates being recommended by the employee because of high likelihood of fit, not low risk to the employee.

Simplified processes are nice but are a distraction not a solution. Some companies hope that simply making it easy to refer somebody will increase success. Unfortunately, this again fails to address the fundamental barriers to quality participation and simply shifts administrative burden for initiating the process from employee to talent acquisition organization. While the submission process should not be arduous or confusing, very few people are deterred from referring candidates by the submission process, particularly if there is an attractive potential reward.

Communication is key, but awareness isn’t the problem. Some companies run large internal marketing campaigns promoting their referral programs assuming that employees are not participating because they lack knowledge of the program or the value proposition. While possibly an issue in some cases, step-change improvement in quality participation rarely results from awareness campaigns.

However, communication is a powerful tool for improving quality participation. Communicating clear expectations for what the process will be for both candidate and employee can reduce the risk of employee-candidate relationship deterioration. If the employer does not visibly and predictably demonstrate to the employee that it is providing the candidate with a fair and positive recruiting experience, the employee is unlikely to allow the employer with the opportunity to impact his/her valuable personal relationships regardless of the reward.

Growing quality participation must start with building an excellent candidate experience. Only when an employee expects that the recruiting process will be enriching, fair, and transparent for the candidate is he/she likely to trust the employer with their valuable relationship. Companies need to be prepared to be responsive, flexible, personal, and empathic when they engage with referred candidates.

The process needs to be clearly defined and communicated up-front and the employer should not deviate from expectations without upfront communication. Furthermore, they need to communicate not just with the candidate, but also with the employee throughout the process. Employers should expect candidates to communicate with the referring employee during the process and therefore need to keep the employee appropriately informed.

Whether a decision to hire or pass on the candidate is reached in the end, the candidate needs to feel like the process was clear, fair, personal, and ideally enjoyable. This doesn’t mean that the company cannot challenge and test the referral candidate as they would any other candidate, but it is especially important that referral candidates reflect on the experience as a positive one (regardless of outcome). The candidate’s communication about the process to the referring employee will define whether the employee to ever refers another candidate and encourages or discourages other employees from referring candidates.

While creating this level of quality candidate experience may add costs beyond those justified for other channels, being able to shift hires from those channels to the referral channel almost always justifies those costs even before factoring in the commonly experienced increase in quality of hire.

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