How can you implement an employee referral program?

One method of finding job applicants is to ask current employees to nominate their friends and relatives for employment. Employee referrals can be a valuable tool both by bringing in quality recruits and by building goodwill among present employees.

Advantages. An organization that encourages employee referrals may create a pleasant work environment in which employees support one another, an environment in which employees feel good about their company because they have been given a voice in selecting their coworkers. Hard-working, conscientious employees are likely to have friends with similar values and will avoid referring deadbeats because they don't want to put themselves in a bad light.

Companies with employee referral programs have found that these programs produce fine candidates. Typically, the candidates possess more information about the company and, therefore, are better prepared than other candidates. These referrals usually fit the position-qualifications better and, as employees, have longer tenure.

Disadvantages. There can be serious problems in relying solely on employee referrals, most notably fair employment problems.

• People typically refer others who are similar to themselves (race, national origin, religion, sex, age, etc). An employer trying to meet its equal employment requirements cannot depend too heavily on referrals if that practice perpetuates an already-biased or non-diverse makeup of its workforce.

• Policies that granted hiring preferences to the children of workforces with few minority employees also have been found discriminatory.

• Less formal practices of word-of-mouth recruiting have also been deemed discriminatory.

• Another problem that employee referrals can create is a too-tightly knit work group, a clique that resists supervision, covers up for its members, socializes much of the time and snubs those not in the group.

Employers with diverse workforces have found employees to be an excellent resource for new employees. Networking among specific employee groups can result in excellent hires. Therefore the concerns expressed about employee referral systems are more a reflection on the make-up of the workforce than intrinsic problems with the system. If the workforce is not diverse, an employer should employ other methods to generate diverse applicant flow.

Designing employee referral programs. Once an employer has decided that it wants to use current employees as a source of job applicants, there are techniques it can use to promote employee participation in referral plans.

• The referral plan should clearly spell out the circumstances under which the employee is entitled to a reward.

• Employees should be cautioned not to make promises of employment to those they refer.

• The plan should state that favoritism will not be shown to any applicant, even if he is the chairman of the board's son.

• The plan should provide a mechanism for knowing who referred whom. Referral cards signed before the applicant is interviewed are one possibility.

Determining the incentive. The most common incentive employers use to encourage employee referrals is cash. This cash award can be calculated as a flat amount, or as a percentage of the new hire's salary. Many plans break the cash award into two parts, one to be given to the employee at the time the referral is hired, the other awarded when the referral completes a probationary period.

Sometimes noncash benefits such as company products, gift certificates, other merchandise, stock or time off are used to encourage referrals. Companies may find that employees are willing to nominate their friends for employment without significantly large bonuses. People like to see their friends employed.

Communicating the program. To publicize the referral plan, a company can use its in-house newsletter, Intranet, or other communication vehicle to list current openings and ask for applicants. It can prepare a special memo to distribute to each employee, put reminders in pay envelopes, and have supervisors spread the word when recruits are needed. The plan should be included in employee handbooks and manuals.