August 16, 2005   view past issues

Our newsletter is
brought to you by

Feature: What’s Wrong With Employee Referral Programs?

Ask any recruiter or HR professional where they find the best candidates for their organization, and most will point to their employee referral program. It’s not always clear what metric is being used to justify this judgment, but there is all but absolute confidence in its veracity. And that troubles me. You see, I think employee referral programs are just like anything else. They can be improved, and in a War for the Best Talent, they must be.

As they are currently operated in most organizations, employee referral programs solicit workers for their recommendations regarding the people they know who may make good co-workers. There are several potential benefits to doing so:

  • although these programs do incur costs, even if it’s limited to administration, they are typically less expensive than other sources of candidates;
  • good employees know other good workers so the quality of the candidates is likely to be high; and
  • the relationship between an employee and a candidate can make it easier to sell a prospect on a new organization, even when the candidate is well taken care of by their current employer.
  • The problem with this rationale is that the potential of employee referral programs, at least in terms of the delivery of quality talent, is seldom fully realized. In fact, the candidates identified by employees are generally the people they know best, not necessarily those who would be best for a specific opening. Said another way, employee referral programs often become the employment equivalent of a “family and friends” exercise.

    These programs may increase retention, which is the metric often used to justify the “quality” of candidates sourced from employee referral programs, but it does not axiomatically lead to high levels of on-the-job performance. When we were waging a War for Any Talent, during the late, unlamented bubble, this get-a-round-peg-in-a-round-hole approach to recruiting may have sufficed. In today’s War for the Best Talent, however, it will not. In that competition, the only strategy that will propel an organization to victory is sourcing and retaining top performers.

    So, how should employee referral programs change? In my view, they must shift from a de facto program for family and friends to an explicit program of talent scouting. In other words, organizations should ask their employees to refer the best people in their field, even if they don’t know them personally, and then reward those employees when the top performers are identified as a fit for a specific opening in the organization and subsequently recruited and successfully hired.

    This talent scouting approach to employee referral is already in place at Eli Lilly and Company. According to a report from the Recruiting Roundtable, this pharma company uses a three-pronged strategy:

  • first, new hires are asked to identify top performers they may have worked with or know of in their fields;
  • second, the HR Department hosts “focus groups” among current employees to target top performers in their fields and assign specific individuals to reach out to them; and
  • third, the HR Department hosts “Bring Your Own Rolodex” meetings with supervisors to probe the networks of senior staff and encourage them to build relationships with passive, but high value prospects.
  • As the Lilly strategy makes very clear, talent scouting moves employee referral programs from reactive to proactive operations. It acknowledges that simply communicating the existence of an employee referral program and then waiting for referrals to trickle in is simply not enough in today’s highly competitive market for top talent. Instead, employee referral programs must:

  • reach into the workforce at multiple touch points and on a regular basis;
  • aggressively solicit the names of prospects, even when openings do not yet exist for them; and
  • assign a specific individual to reach out to and build a relationship with each and every prospect.
  • Why is all of that necessary? Because the best talent is almost always employed someplace else. To recruit them, therefore, an organization must convince these prospects to do the one thing that humans most hate to do: change. They have to be sold on the notion that they should shift from the devil they know (their current employer, supervisor and commute) to the devil they don’t know (your organization, a new boss and a different commute).

    Top talent does not make such shifts on a whim or on the basis of a phone call from some stranger. They need a lot of information, and they want to get that information from someone they know and trust. That’s why building relationships with top prospects in advance is so central to recruiting them. They need to be wooed. They expect to be wooed. And, wooing takes time and effort. It is also the central feature of an effective employee referral program.

    Thanks for reading,


    P.S. Please tell your friends and colleagues about WEDDLE’s newsletter. They’ll appreciate your thoughtfulness and benefit from your recommendation.

    This Issue’s Sponsor: Yahoo! HotJobs

    This issue of WEDDLE’s newsletter is brought to you through the generous support of Yahoo! HotJobs.

    Local Candidates. Attractive Local Prices. Post a Job on Yahoo! HotJobs!

    Place your job ads on Yahoo! HotJobs in minutes to start receiving resumes. It’s fast, flexible and easy – with the ability to reach candidates beyond your local newspaper.

    Where do you want to post jobs?

    Section Two: Site News You Can Use

    Capital One, the McLean, VA-based financial services company, took training to a whole new level recently when it introduced a series of classes delivered by podcasting. Podcasting involves digital recordings of content (e.g., music or, in this case, training material) that can be downloaded from the Internet and played on an MP3 player such as an iPod. In fact, just to make sure that employees took advantage of the online courses, Capital One bought 3,000 iPods complete with its logo and handed them out them to workers (they have to return them if they leave the company). For the moment, at least, courses focus on topics applicable to the entire company-diversity and understanding the company’s quarterly earnings call with business analysts-but more specialized courses are expected in the future. What’s the advantage of the podcasting approach? Company trainers expect more people to participate and get more out of the courses because they can download the content, take it with them wherever they go, and listen to it whenever they want. Who knows … that person sitting next to you on your next plane trip-the one plugged into those little white earphones-might just be learning about their company’s EBITDA. released the results of its latest survey of recent graduates in the workplace. As is often the case with such polls, there was some good news and some bad. The good news was that three-quarters of the respondents said they would avoid working for a company with unethical business practices. The bad news was that almost one-in-ten (9%) said that ethical principles and values didn’t matter because they “are relative anyway.” These ethically challenged new workers must have been too busy studying to read the news over the past five years. Either that or they were charter members of the Key Lay and Bernie Ebbers campus fan clubs. But why do we care? Because the poll results make clear that we can no longer assume that workers, in general, understand and appreciate the importance of ethical business conduct. So, what should we do? First, we need to bring this issue to the attention of the senior leadership in our organizations; and second, we need to make our organizations’ commitment to ethics a part of our onboarding process, our corporate training and leadership development programs, our performance appraisal process, and the actions we expect our managers and executives to model on-the-job. launched in the United Kingdom as a new job board dedicated to careers in the football–that would be soccer to you American blokes–industry. It is yet another entry in the growing list of … well, let’s just call it the odd British habit of creating intriguing job board names. It joins such renowned predecessors as, a regional job board for secretaries, and, a job board serving the recreation industry.

    Hudson Highland Group, Inc. announced the results of a survey of views about compensation among U.S. workers. It found that, while 66% of the respondents were satisfied with their pay and benefits-who do they work for?-most also felt that their employer’s compensation program was poorly managed. An astonishing 33% said they rarely or never receive a formal performance review, and 60% said that tenure on-the-job-not performance-determines one’s level of compensation. And there’s more, 31% reported that their employer has no consistent standard or process for determining compensation, and fewer than half (49%) feel that they are paid on a par with their peers. While I suspect there are plenty of compensation programs that do need improvement in terms of their design, these results also suggest that there is an equally great need to do a much better job of communicating plan guidelines and procedures. The goal, of course, is not to turn workers into experts on the mechanics of the program, but rather to reassure them that the program is responsibly managed and that it is committed to treating all workers equably. launched four new channels on its site: OpsLadder for positions in consulting and general management, TechnologyLadder for postings in software design and engineering, HRLadder and LawLadder. These new offerings join the site’s already established channels in finance, sales and marketing. All of the channels operate the same way: Job seekers pay $25 for access to the listings, while employers and recruiters can post their $100K+ job openings for free.

    Section Three: Site Profiles

    Site Insite … how well do you know the Web’s 40,000+ job boards?

    1. Your utility is having problems keeping up with electrical demand this summer, and you need to bring on another electrical engineer fast. Which of the following sites would cause a disruption in your search?

  • Dice
  • 2. Traffic to your company’s Web-site has exploded, and you need a cold fusion programmer to help keep up. Which of the following sites would take the bugs out of your sourcing effort?

  • 3. Your company is renewing its commitment to diversity, and you’re looking for top candidates in all of the fields for which you recruit. Which of the following sites would be prejudicial to your success?

  • (answers below)

    Site Spotlite … from the pages of WEDDLE’s 2005/6 Guides and Directories

    NABA Online Career Center

    National Association of Black Accountants, Inc.

    Post full time jobs: Yes

    Post part time, contract or consulting jobs: Yes – All

    Distribution of jobs: National USA

    Fee to post a job: $185/posting

    Posting period: 30 days

    Can posting be linked to your site: Yes

    Resume database: Yes

    Number of resumes: 400

    Source of resumes: Direct from individuals

    Top occupations among resumes: Finance & Accounting, Information Systems, Executive

    Other services for employers: Banner advertising, Status reports: banners/postings

    Answers to Site Insite

    1., the site of a cabling and pre-wiring company for telephone and cable TV.

    2. All but, a resource site for cold fusion programmers that does not offer job postings.

    3., the site of a talent agency for African-American entertainers.

    Support Our Sponsor: Yahoo! HotJobs

    This issue of WEDDLE’s newsletter is brought to you through the generous support of Yahoo! HotJobs.

    Local Candidates. Attractive Local Prices. Post a Job on Yahoo! HotJobs!

    Place your job ads on Yahoo! HotJobs in minutes to start receiving resumes. It’s fast, flexible and easy – with the ability to reach candidates beyond your local newspaper.

    Where do you want to post jobs?