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Why You Should Have an Employee Referral Program

Why You Should Have an Employee Referral Program

The benefits of a good employee referral program include expanding your talent pipeline and saving money and resources. If you don’t currently have a program, you should. SHRM cites an analysis of over 440,000 job interview reviews posted on Glassdoor since 2009 which shows that employee referrals are the most effective sourcing channel and used most often at companies that rely on a highly skilled workforce in technology, consulting, and financial services industries.

At least a fourth of your hires should be coming from employee referrals. In fact, according to a study performed by SmashFly, a recruitment marketing platform provider, 32 percent of new hires originate as referrals. Lauren Kiser, HR Director at Dude Solutions in Cary, NC says “We've always had a highly referred organization. Our goal is to source 50%+ from referrals and we are on target to meet that goal this year.”

Still, with all the research that proves the power of employee referrals there are still companies that don’t have them or don't efficiently use them. Online applications (42 percent) were reported as the most common sourcing channel in the Glassdoor analysis, followed by college and university referrals (10 percent), employee referrals (10 percent) and recruiter referrals (9 percent).

To get more data I contacted Recruiters, HR Managers, Sales Managers, and Marketing Managers to learn what their companies offered. I was shocked to learn how many of these employees didn’t know if their company even offered a program let alone the reasons why you should have one.

1. Referred Employees Have Higher Retention Rates

Studies continue to show that employee referrals are the number one source of quality hires, have greater job satisfaction and stay longer at companies – 46% stay over 1 year, 45% over 2 years and 47% over 3 years.

[Related: 6 Simple But Highly Effective Ways to Boost Employee Engagement]

2. Employee Referral Programs Produce Financial Benefits And Improve The Bottom Line

According to CareerBuilder, 82 percent of employers rate employee referrals above all other sources for generating the best return on investment. Lost revenue, lost opportunity, customer attrition, lost experience, and competitive advantage costs can tally up so filling positions quickly and retaining good employees is crucial. Studies show that applicants hired from an employee referral start sooner than applicants found via job boards (29 days compared with 39 days via job boards)

3. Employee Referral Programs Improve Employee Engagement

Companies with a highly engaged workforce experience a 19.2% growth in operating income over a 12-month period. Social media has increasingly blurred the line between personal pursuits and work life. In this highly social age, it’s the employees that create your company’s culture so be sure to attract the best ambassadors. Since 75%‐80% of people leave jobs because of relationship, employers should encourage strong relationships among employees which can start before they join the company. Digital Marketing Strategist, Brian McDonald says that while his company Healthgrades offers $500 referral bonus he believes that referral bonuses should go beyond a link and an application and should be based on well you know a referral. Highly engaged employees are 87% less likely to leave the organization and are two times more productive.

4. It’s A Great Way To Test Your Company Culture.

A referral program not only pays an employee a bonus for a good hire it also reinforces and celebrates your employees in a tangible way for contributing to your company’s success. When you take the program seriously, your employees will too. An employee referral program is a temperature gauge on your culture so if your employees are recommending their friends then your culture is good. Ranya Hahn, HR Director at Cenduit is a believer stating her company offers $1,000 referral bonus for a qualified hire after 90 days. For hard to fill roles they have been known to double that with good success.

Convinced? For more information on developing your company referral program visit:

This article previously appeared on LucasSelect.


Tricia Lucas has over 25 years of demonstrated success in recruiting, marketing communications, and social media and helps technology companies recruit more efficiently by focusing on: Recruiting Efficiencies, Employer Branding, and Social Media.

Have more questions? Follow up with the expert herself.