December 19, 2018 9:22 AM

Do Employee Referral Programs Improve Candidate Quality?

Did you know that one of the most powerful recruitment tools at a hiring manager’s disposal is often the one that is largely ignored? That’s right, the employee referral program that is gathering dust in your bottom drawer is one of your best bets for reducing both your time to hire and cost per hire. But what about candidate quality? Do new hires recommended by current employees really work out better in the long run?

Before we answer that loaded question, let’s first take a quick refresher course in employee referral programs.


What is an employee referral program?

It’s exactly what its name implies. The employee referral program allows your current staff to recommend people for vacant positions within the company. These people could be friends, family, or even former colleagues from a previous role they once held.

These programs often (but not always) offer a reward to employees that recommend a successful candidate. The reward can be anything from a gift to a salary bonus, and it’s usually based on the candidate not only landing the position but also successfully completing a probation period.


What’s so great about them?

In a nutshell, they’re fast and cost less than traditional sourcing methods.

You see, with an employee referral program you are essentially turning your entire workforce into part-time recruiters. And as they share the news of a vacant position in the company throughout their social networks, your reach is extended not only to people actively seeking work on jobs boards but also those passive candidates we love so much.

Accelerate your time to hire

A good employee referral program that your entire workforce is aware of can reduce your time to hire quite significantly. Studies suggest that employees hired through referrals come on board 55% faster than those sourced through job sites. Now that’s a stat that is hard to ignore.

Reduce your cost per hire

Employee referral programs are also great for your bottom line with 82% of employers stating that referrals offer the best return on investment. They eliminate costly external recruiter fees, cut down on advertising costs, and can even minimize travel expenses.

That’s not to say though that referral programs are cheap. Candidates still need to be screened and interviewed while successful referrals must then also include a bonus for the referring employee. However, in the grand scheme of things, a $1000 bonus is a small price to pay for a new employee that fits the bill.

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But do they really improve candidate quality?

In a word, yes.

There is a common misconception that employee referral programs encourage your staff to recommend as many candidates as possible in the hopes of nabbing a weekend away in a five-star hotel or that $1000 bonus.

We all know that having more candidates doesn’t necessarily mean a shorter time to hire. And nor does it even improve your chances of finding a suitable candidate so this is an understandable cause for concern. But well-crafted referral program will make it absolutely crystal clear that the company only wants candidates that your employees feel are genuinely suited to a vacant role.

If your employees aren’t paying attention to this rather important point, then you might want to have a little chat with them.

So let’s look at some stats, shall we?

According to a study carried out by Dr. John Sullivan, 88% of 73 major employers stated that referrals were the best source for above average candidates. What this means is that those employers accept that if it’s a top-drawer candidate they’re after, the in-house employee referral program is their safest bet.

Of course, they won’t ignore other channels (casting a wider net is essential), but they will place just as much importance in the creation of a rewarding referral program as they will in crafting job posts. They might even consider it a priority.

Another stat of note relating to candidate quality is the revelation that employee referrals reduce turnover rate. Retention after two years among referrals is significantly higher with 45% of referred employees still in the job compared with 20% of those hired from jobs boards.

The simple fact that almost half of employees hired through a referral program stay in the job for a minimum of two years speaks volumes about the quality of their work. After all, unless they know about some skeletons in the CEO’s closet, very few below average employees will manage to stay in a role that long.


The unexpected benefit of employee referral programs

Yes, there are more benefits, but we’ve singled out this one as one of our favourites; referral programs boost employee engagement.

When a company asks their (non-recruitment) employees to recommend candidates for a vacant role, it is allowing the employees to not only recommend people that they think are qualified, but also those that they feel will fit in with the work culture. In essence, the company is allowing them to choose the people that they want to work with.

The fact that the company then rewards them for their recommendation is a clear sign that their input is valued. As you are probably well aware, an employee that feels valued is more likely to feel engaged at work. And engaged employees offer nothing but benefits!


As you can see, employee referral programs are an essential tool in a recruiter’s arsenal and should always be the first avenue of approach when filling a role. But for those times when your employees struggle to find suitable candidates or when you have multiple roles to fill, it’s always good to have a solid candidate pipeline in place to fall back on.

And you know who can help you with that, right? Our sourcing consultants live for candidate sourcing. Seriously, nothing makes them happier than fleshing out a candidate pipeline. So make one happy today and book your free no-obligation demo. Trust us; if your employee referral program fails to deliver, we’ll make sure you fill those roles.

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