Operating Referral Programs on a Limited Budget

Originally published February 27, 2006.

One of the most common arguments against launching an employee referral program has to do with the lack of budget for such a program. Many recruiting leaders and line managers are familiar with the stories of outrageous employee referral bonuses, and multi-pronged program advertising campaigns that cost serious money. The stories have helped perpetuate the perception that without hefty financial support, an employee referral program cannot be successful. That’s not the case. Approximately two-thirds of the employee referral programs in existence operate without a dedicated budget. While many of those programs produce mediocre results, there is proof that programs operating on a limited budget can produce world-class results. A number of best-practice firms have found that it is possible to operate the employer referral program on a limited budget or even with no budget all, if you know how to market and motivate employees. This article covers how referral programs can operate without breaking the bank. The Referral Bonus The largest expense item for most referral programs is the referral bonus. Approximately 90 percent of the programs I have encountered use some form or monetary incentive, the largest of which I have seen recently is $40,000. While that might seem extreme, keep in mind that for some positions you would most certainly pay more than that in advertising and executive search fees. The evidence is clear: Bonuses do positively impact referral rates. But it is also clear that there is a diminishing return as bonus amounts escalate. The average bonus across all industries for full-time hires is approximately $1,200. However, as I stated earlier, it is possible to operate a successful program without paying a bonus. FirstMerit Bank, for instance, set industry standards in referral rates without paying a bonus. The rest of this article will focus on some tools and approaches that you can use to get excellent results without spending a lot of money. (Note: Someone once said that everyone has a price, a statement that has profound relevance to referral program managers. The truth is that if your organization is a great place to work, what you will have to do to motivate employees to participate is a lot less than if your organization is a less than desirable employer!) Tips on Getting Great Referrals Without Large Cash Bonuses If you stand back and look around, there are lots of examples of people doing altruistic things without the promise of a cash reward. For example, many people regularly donate their time to charities without any expectation or thought of remuneration. Getting employees to participate in a referral program without referral bonuses requires that you think like a charity. To get someone to do something, whether it is to refer a friend or colleague, or to accept a job, requires that they perceive a positive exchange in value for what they are giving up. Again, value can be generated in numerous ways. If you can’t use monetary bonuses, find something you can use; it can be as simple as an honest thank-you or as complex as a raffle for non-monetary prizes such as a reserved parking space or cubicle by a window. The Best Option ó Use A “Give Me Five” Program Traditional referral programs are great, but you don’t need one in order to gather some of the best names possible (as recruiting prospects). Most referral programs are “passive” in that they don’t seek out individual employees and ask them to participate in the program. A more proactive approach is to actively seek the out the best people in your organization and directly ask them to contribute the names of the best people they have worked with. I call that program “Give Me 5”. The best thing about this program is that most people will participate without ever expecting a bonus or reward! The program is based on the fact that all of us come across some extremely talented people in our daily activities, but rarely do we take the time to notify recruiters or initiate a referral conversation. Employees know in their minds who these stars are, but need a trigger to stimulate the conversion of that talent from contact to candidate. Using this approach, an HR generalist or recruiter attends a regularly scheduled meeting of employees. With the permission of the meeting sponsor, the HR person simply approaches key individuals during breaks and ask them directly to help “build the team” by thinking back and providing the names of the five:

Best managers they have ever had
Best team leaders they have encountered or worked with
Best former employees they would like to see return
Best out-of-the-box thinkers
Best problem solvers
Best sales persons that consistently the competition in selling you
Best mentors of junior employees
Best people that worked well under pressure
Best team players/co-workers
Best forecasters
Best at a particular skill
Best professionals with international experience
Best people with diverse backgrounds
Best customer-service professionals encountered

It turns out that in a face-to-face meeting, individuals are more willing to provide names. You can go directly to their offices or hold “Rolodex meetings” to also capture the names. Next Best ó Make Them “Own” the Teambuilding Process If you build your referral program exclusively around money and rewards, you’re making a huge mistake. Yes, people will refer Canada if there is a significant reward but they are also likely to bombard you with large amounts of low-quality resumes in the hope that one of them might filter through and earn them a bonus. A superior approach is to convince every employee and every manager that it’s to their direct benefit to have the best team working alongside them. That requires that they agree to accept some of the burden of identifying the very best. These employees and managers, because of their extensive technical knowledge and contacts in their field, will definitely be able to significantly increase the quality of those who are sourced and hired. An analogy can be found in sports: While you would like to pick your little brother for your team, you actually pick the biggest and strongest person because you know you need a great team in order to win. When winning is critical and the responsibility is shared, everyone is willing to look for the very best, instead of just referring their closest friends. The steps in the process are actually quite simple. First, you work with the accounting department to determine the dollar difference between on-the-job performance of an average verses a top-performing new hire. Then you develop a chart showing the correlation or direct relationship between the number of referrals in a business unit and its ability to meet its stated goals and metrics. When you present these startling facts, almost every manager and employee will realize that great recruiting has a direct impact on their ability to do their job. Once they realize that if they hire a weak person, they will have to do “makeup” work to account for the higher error rate, they will accept their responsibility for providing the recruiting department with the names of the very best people they come across. Other “No Cost” Rewards and Recognition If you literally have no budget available, here are some tips on how you can excite and reward employees without spending more than pocket change:

Lunch with the CEO. Most people are excited about the opportunities to spend time with senior executives. Get the CEO to agree to a quarterly luncheon in their conference room for those who have successfully referred candidates.
Recognition in a newsletter. List the names of successful referrers prominently in a regular company newsletter. Where possible, try to write a profile of a few top referrers that includes tips and successful approaches.
“First choice.” Ask the manager to give successful referrers “First choice ” in an area that managers have discretion. This might include scheduling, vacation, choice of a co-worker, preferred parking for a week or an opportunity to serve on a key project.
Make it part of any travel reimbursement. Seek out the person who runs your travel function and ask them to include a written statement in their communications with individuals who will soon attend conferences, seminars, or professional meetings. The note should request that the individual attending the conference accept responsibility for bringing back at least three names of key individuals that they met at the event.
Thank-you calls. Ask senior managers or even the CEO to directly call and thank individuals who made critical referrals.
Regular announcements. Have the CEO make an announcement at “all-hands” meetings and then position people at the door to collect referral slips as people leave the meeting.
E-mail reminders. Periodically send customer-relationship-management-type emails to remind the employees that are most likely to know of a great candidate to provide you with names. When asked directly, most employees will provide names without expecting a direct reward.
Ask new hires during orientation. During orientation ask new hires to provide you with the names of key individuals both from their previous firm and from other firms.
Send a recruiting-culture message during orientation. During the orientation, make it clear that you have a “recruiting culture” and that “every employee is expected to be a recruiter.”
Ask interns. If you’re looking for college hires, ask your interns to be “talent scouts” when they return to campus. Ask them to attend club meetings and to identify the best people in their classes.
Post charts or “thermometers.” Place them in conspicuous places around the facility to show the percentage of overall referral targets that have been met (much like how “United Way” programs publicize their progress).
Rolodex parties. Once a month or once a quarter, hold informal Rolodex or PDA mailbox-download parties where snacks are provided and drop-ins or invited employees provide referrals.
Ask executive search firms and vendors. Ask any executive search professional who works for you (or would like to work for you) to provide you the names of “junior” people that they run across who would not qualify for their executive database. Also, ask vendors who “get around” an opportunity to offer up names of top individuals.
Appear in advertising. Work with the advertising department to allow individuals who successfully refer an opportunity to appear in regular company product advertising. Some individuals find this exciting; the cost to the firm is minimal.
Ask mentors. If you have a formal mentor program or just know of individuals who mentor others, ask them directly if they would refer their mentees or other individuals who they know regularly mentor. These mentees are particularly valuable because mentees have higher success and retention rates ó mostly because their mentor helps them through tough times, and mentors in general are just good hires.
Have a slogan. One of the best ways to excite employees about referrals is to give them a theme or a slogan, just like a marketing or advertising slogan. Slogans remind people of the reason why they’re referring.
Hold a contest. If you’re looking for retail or customer-service people, one of the best ways to identify good people is to hold a contest among your employees to identify the best customer service people who they run across in their daily lives. A small prize can be given to the individual or the team that comes up with the most referral hires. It turns out that if you ask people to look for customer-service talent during their daily chores and errands, they will gladly comply. Putting the search into contest form adds competition to the recruiting equation.
Work with marketing. Because great marketing and advertising are critical to referral program success, it’s important to build a partnership with these departments. I found that, when asked, they are more than willing to contribute time and resources for free. This is true in part because it gives them a chance to show their creativity and work inside the firm were everyone can see it.
Build the business case for line managers. The primary roadblock to the success of any referral program is that managers don’t see the impact that referrals have on their bottom lines. You can rectify this problem by working with the CFO’s office to develop statistics to demonstrate the dollar impact that higher referral rates have on meeting both a manager’s recruiting and business goals.
Set targets. Sometimes just raising expectations can cause an increase in referrals. For example, if you give each manager a target or quota for their team, quite often that serves as a sufficient motivator to increase referrals from that team.
Manager’s bonus. Make the effectiveness of their team’s referral effort part of a manager’s bonus criteria.
Distributing reports. The first of each month, distribute a metrics report to all managers that force-ranks departmental performance on referrals. This approach can also help build competition. In a similar light, distributing reports to senior executives which show which managers are not meeting their recruiting quotas can also spur embarrassment and thus motivation for managers to get more referrals from their people.
Hire an intern to run it. Although it’s certainly not my first choice, many firms, including Cisco, let interns manage a significant part of their referral programs. Interns tend to be so excited and enthusiastic that they actually produce better results than recruiters who often see the assignment as a negative.

Approaches ó If You Have a Little Money

Provide a cheap gift. Rather than a large cash reward, provide employees who successfully refer a $25 gift card, free movie tickets for the whole family, or something similar.
Vacation day. Develop a program that gives a free Friday or Monday off for a successful referral on a key position. If your senior management is cheap, you can always give the day off after three or five successful referrals. Yes, management has to approve this, but a day off is a powerful motivator. Actual costs are decreased if the person referring happens to be exempt employee.
Drawings or raffles. Rather than giving individual bonuses, which can be expensive, you can cut down your overall costs by offering a periodic drawing once a quarter for a fabulous trip, automobile lease, or other glamorous prize. Many firms have found that these drawings cause almost as much excitement and result in a very good referral rates, provided that the prize is sufficiently exciting and the marketing is good enough to keep everyone aware of the contest.
Referral dinner. Hold a once- or twice-a-year dinner to celebrate those who have made successful referrals. Obviously the CEO and other senior executives should be in attendance to personally recognize everyone who has successfully referred. If you can afford it, allowing spouses or family to attend can also be a nice touch, and you could also ask them to be referral sources.
Pins and plaques. Recognize individuals who have successfully referred people with a plaque, award pin, T-shirt, etc. You can also place their plaque or picture in the lobby to further highlight their efforts.
Use external vendors. If money is tight and you don’t have the resources to develop a referral website, there are numerous vendors that for a fee, do a pretty good job of this aspect of the program.