Reimagining Employee Referral Programs

It doesn't make sense for companies to pay employee referrers a fraction of the cost they pay recruiters. Here's a better way.

In last week’s Leadership Minute on hiring best practices, I mentioned that one of the most effective sources of candidates is also one of the most underutilized: an employee referral program.

Many companies rely on third party recruiters to source talent. They quickly find themselves paying hefty fees, including nonrefundable retainers and success fees of 20 to 30 percent of the first-year compensation for each employee they hire.  

In contrast, companies that leverage a referral program often pay a comparative pittance, with many offering between $1,000 and $5,000 for each new employee who is referred. In other words, many companies pay much less to bring in employees recruited and vetted by their own team, as opposed to a stranger chasing a big payday.

I’d argue that this price disparity makes no sense. Why would you want to pay an outside recruiter so much more than one of your own employees to make a hire? In fact, evidence shows leaning on employee referrals gets a better outcome than outside recruiters: Zippia found that employee referrals retain better, and that they are more likely to accept job offers too. 

You probably need to radically rethink your employee referral program. Here’s how.

What To Pay—And When