Employee Referral Programs

January 5, 2011

In-house referrals have the longest tenure and highest satisfaction of all newly hired employees.

Numerous studies have shown that hiring people referred by current employees tend to yield better results than want ads, employment agencies, and Web pages.

Consider that 88 percent of employers rate employee referrals as their No. 1 source of above-average candidates, says John Sullivan, a San Francisco State University professor of management. And, he adds, such referrals have the longest tenure and highest satisfaction of all newly hired employees.

Among the reasons for these better results is that current employees understand the needs and culture of your practice so they tend to refer people who will be a good fit.

If you are thinking about instituting an employee referral program, here are some issues you should consider:

• Current staff membersmay know people with the skills for which you're looking who are unhappy in their current jobs, or thinking about resuming their careers. Offer them a substantial recruiting bonus if they recommend an individual who, following a 90 day probationary period, is subsequently hired. When determining the amount of the bonus, consider the level of the position and the fees you would otherwise have to pay an employment agency. The typical range of bonus payments is 2 percent to 4 percent of the position's salary.

• Employee referral programsare especially effective in the case of highly specialized positions such as coder that might be difficult to fill through conventional channels. People tend to associate with others in their professions, which gives them access to those with specialized talents.

Make it clear that the same high standards and selection process will be used to evaluate job applicants recommended by staff members. Stating this policy upfront helps avoid any obligation you may feel to hire someone you don't consider the best choice for your practice.

• To avoid under-qualified candidates, requests for employee referrals should be specific, including the mandatory qualifications and experience that an above-average candidate should have.

• A new employee's performancemay not be measurable in only 90 days. In such cases, it may be prudent to offer a series of installment payments for referral bonuses, based upon retention of the referred employee through several milestones.

A recent survey by Referral Networks, a New York-based company, offers some insights into what motivates employees to make referrals. The news is good - monetary incentives are not what drives the process. Of the 2,300 employees surveyed, 42 percent said they referred because they wanted to help a friend find a good job; 24 percent said they wanted to help the company; and only 24 percent said they were motivated by a reward.

A word of caution however, it is possible that you might experience a backlash if new employees are "pirated" from colleagues or other referral sources because of your employee referral program.

Estimates of employee turnover costs range greatly - depending on the costs of separation, recruitment, interviewing, and training - plus the time a new employee takes to reach her maximum efficiency level. An employee referral program can greatly reduce such costs and add significantly to your bottom line.

What really matters in the end is whether your current employees would recommend your practice to their friends.

Bob Levoy is the author of seven books on human resource and practice management topics. His newest book is "222 Secrets of Hiring, Managing and Retaining Great Employees in Healthcare Practices" published by Jones & Bartlett. He can be reached at blevoy@verizon.net.