Here’s How to Build a Winning Referral Program

“A workforce of great people not only does great work, it attracts more great people. The best workers are like a herd: They tend to follow each other.”

This claim comes from Google executives Eric Schmidt and Jonathan Rosenberg, who wrote the book How Google Works, which outlines management strategies employed at the company. Google, of course, is widely known for its strong, positive work culture featuring ping pong tables, free food and very dedicated employees.

In the book, Schmidt and Rosenberg argue that this culture is hugely important in creating a like-attracts-like “herd effect,” which is the key to finding (and keeping) star players.

A positive herd effect can be orchestrated. ‘You’re brilliant, we’re hiring,’ the phrase adorning Google’s early ads recruiting new employees, was a clever Marxist trick. Not Karl, Groucho, since it was designed to inspire a response along the lines of ‘Yes, I do want to belong to this club that wants me as a member!’ The intent was to let the world know that we set the hiring bar quite high, and rather than dissuading applicants, this became a recruiting tool in itself.

This is fairly similar to the “Build it and they will come” attitude popularized by Steve Jobs at Apple. While the Apple quote applies to products, the bottom line of both Google and Jobs’ approach is the same: Create something amazing, and the best people will find you.

This process doesn’t happen naturally: It’s “orchestrated,” as Schmidt and Rosenberg write. Is it possible for you to imitate Google’s hiring success? Probably not entirely; however, you can implement their principle that employees – not recruiters – are the key to finding top talent.

In this blog post, I’ll discuss the challenges of recruitment, how those challenges can be partially met through an employee recruitment program, and the steps you can take to build an effective system.

The high cost of finding the best employees

Hiring a new employee is rarely easy, and it involves sunk costs in two main areas:

No. 1: Lost revenues, due to lowered efficiency resulting from the new employee’s lack of training and familiarity with the job.

It’s unrealistic to expect that a new employee will be able to operate at the same level of efficiency as his or her predecessor, simply due to the skills uniquely required for each position. Learning hard skills, such as technological prowess, or soft skills, such as familiarity with departmental processes and informal power structures, simply takes time to build.

These inefficiencies result in lost revenues: According to a study by the Society for Human Resource Management, employers will need to spend the equivalent of six to nine months of an employee’s salary in order to find and train their replacement. This is due to a variety of expenses, ranging from training to advertisement to recruiting to lowered employee productivity due to inexperience.

No. 2: Lost time, due to the screening process required from the HR department.

In an HR manager’s ideal world, the recruiting process would likely constitute a small minority of time spent at work. Instead, he or she would spend time improving departmental processes, organizing employee events, or coming up with great employee appreciation gifts.

In other words, every minute spent replacing employees is a minute not spent on focusing on the employees at the company right now. 

How can HR managers mitigate these sunk costs?

Many HR managers realize the necessity of hiring good employees, and to help manage some of these sunk costs, a company will often hire a full-time recruiter whose only job is to find and replace talent. Other departments outsource the process altogether, instead relying on temp agencies.

However, there may be a better way: The employee referral program. As Schmidt and Rosenberg argue, top performers readily recognize other top performers, and you can reach a vastly larger network of superstars by asking your employees to do some of the work for you.

Employees, who work day-to-day in your company’s culture, will have a much better understanding of who will be a good fit. Also, even the best recruiter has limits on his or her time.

By expanding the job of finding talent to your entire organization, you can dramatically reduce the amount of unqualified applicants – or at least increase the number of qualified leads so that the time spent sorting through the unqualified applicants can be minimized.

These reasons are likely why referrals are:

  • No. 1 in employee retention rates (46 percent after 1 year, compared to 33 percent from career sites),
  • No. 1 source in hiring volume,
  • No. 1 source for hire quality, and
  • No. 1 fastest time to fill (29 days vs. 45 days for career websites).

Also, while it may be counterintuitive, referrals are the No. 1 most productive source for diversity hires, well above diversity career fairs.

Granted, no problem has a once-size-fits-all solution, and there are potential pitfalls to a recuriting program. Most notably, if not managed properly, these programs can end up becoming a burden to employees and HR managers, rendering them useless.

But a well-run program can be valuable, by reducing the sunk costs detailed above.

But first, a caveat

As with most improvement processes, an effective program starts with goals. Specifically, what kinds of employees do you want to recruit? In order for your employees to become effective ambassadors for your company, you’ll need to clearly communicate what you’re looking for. And to do that, you have to actually know what you’re looking for.

For example, should the program recruit at all levels or just manager level and above? What traits are you looking for in potential employees (the right personality, the right background, effectiveness, specific interests)?

The details of your program should be tailored to your unique needs, but Recruiting Daily recommends breadth over depth:

Ditch the narrow list of requirements and minimum qualifications and ignite your referral efforts by accepting general referrals as a part of your program. Instead of requiring position or limiting your program to specific referrals for specific requisitions, increase the utility of employee referral programs by letting your best people refer the best people they know, regardless of open headcount or availability.

In addition to writing down the “demographics” of your potential new hires (level, salary, experience, etc.), it’s also in your interest to think through how these people will affect your culture. Like Schmidt and Rosenberg argue in their book, the recruiting process is an essential element of creating and maintaining your culture.

It’s possible to leave this process up to intuition (after all, during the interview process, an HR manager will often look for someone who will be a good “fit,” and “fit” is just a euphemism to cultural affinity).

However, if you’re going to install an employee recruitment program, you’ll be relying on more than just your HR team to find potential new hires. All your employees need to clearly understand “fit.” Thus, before promoting the program, you must be able to first clearly articulate the following:

  • The characteristics of your workplace culture (If you need help doing this, I recommend reading Fulton Breen’s blog post here)
  • The ways in which you hope to impact (or prevent an impact on) this culture with new hires

With this in mind, you’ll be able to communicate a consistent message to your employees when you ask them to be on the lookout for new hires.

After you’ve defined what you want from the program, the next step is to tell people about it.

Step 1: Use a Systems-Based Approach to Build a Program that Is User-Friendly.

Any departmental process can get cumbersome if you let it, and it’s important to avoid making the program complicated for two reasons:

No. 1: Make it less burdensome on you: The more heavily you rely on your recruiting program, the more potentially complicated it can become. Remember, the goal here is to reduce the costs associated with recruitment. If you spend just as much time managing the program as you did on recruiting before, you haven’t achieved much.

No. 2: Make it less burdensome on your employees: While it’s nice to tout the benefits of having your employees help do the hiring work for you, it’s also important to be aware that they have other responsibilities. Thus, your program should never seem like extra work.

To help prevent these potential downsides, consider a few systems:

A system to obtain the relevant information you need from employees: You’ll need to clearly define what you want from employees so they know what “counts” as a referral. This could range from very simple (nothing more than needing a name and contact information) to more complex (requiring additional information about the background of the employee’s relationship with the candidate; cited reasons why the candidate is qualified, etc.).

The tricky part will be to find your own happy medium. Remember that the more simple the system, the higher quantity of referrals you will get. The more complex, the higher quality.

A system that defines the incentives for your employees to participate: Be sure you know how your employees will be rewarded for the referrals, should they work out.

In general, financial compensation is most popular. This article from Recruiting Daily recommends two key elements that can establish the right incentives:

  1. A tiered system (More pay for higher positions, such as executive-level hires)
  2. A staggered process (1/3 paid on hire, 1/3 paid after 90 days, 1/3 paid after six months), which will encourage the employee to keep the new hire around

A system to measure the effectiveness of your efforts: Step number four describes this in more detail, but for now, know that you should have some kind of tracking program in place that measures costs and benefits. Otherwise, it will be hard for you to justify the program’s existence to leadership down the road.

Step 2: Brand and Internally-Market Your Referral Program.

A key element of an employee-based program is the employees! If HR is the only department that knows about your program, it’s not going to be of much use. To avoid this problem, consider two aspects of a well-branded recruiting program:

Aspect 1: It should be branded as a referral program.

Employees should clearly know:

  1. That the program exists, and
  2. The benefits to participating in the program.

There’s no need to dance around the topic when pitching the program to your employees. Instead of calling it a “talent recruitment operation” or a “team augmentation effort,” simply tell your employees that you’re launching an employee recruiting program and list the benefit of participating (e.g. they’ll have top-notch colleagues, they could get financially compensated).

Additionally, you should set clear expectations about what will happen when an employee makes a referral.

“The single worst mistake a company can make with its program is to not contact referred candidates when an employee expects them to,” advises LinkedIn. “If that happens, it’s unlikely that employee will refer someone else.” (See Step 1 for more details on setting up a system to streamline this process.)

Aspect 2: It should be internally marketed.

This happens in two ways:

  1. You need to make sure your employees know what to look for in terms of “demographics” and cultural fit (using the process outlined in my introduction section). I recommend creating a one-pager or a bulleted list.
  2. You need to make sure your employees are aware of the actual open positions. This can be as simple as sending out a weekly email alerting employees to the spaces that need to be filled or by mentioning these positions at team meetings.

If you’re wondering where to house this information, I recommend using a special intranet page or a SaaS platform designed for internal communications. Novareté, for example, has a “Resources” feature that allows you to upload information relevant to your employees.

Now you have created a program and told employees how to use it. The next step is to make sure you are giving them the feedback they need to use it well.

Step 3: Institute a Feedback System to Keep Employees Up to Date.

I mentioned above that the most popular way to incentivize employees to use the program is financial bonuses. However, money is not always the best motivator for employees.

In today’s environment, especially one in which millennials are increasingly becoming part of the workforce, your employees need to feel valued. After all, employees who report feeling valued by their employer are 60% more likely to report they are motivated to do their very best for their employer, according to a Psychologically Healthy Workplace Program, “American Psychology Association Harrison Interactive,” Workplace Survey.

This applies to you in two specific ways:

  1. Recognize, recognize, recognize. If an employee participates in your program – especially at the beginning when you’re still trying to convince people to participate – be sure to recognize their contribution.

    When announcing a new hire, consider also including the name of the employee who referred them. If the referral doesn’t work out, it still might be a good idea to recognize the employee’s contribution during the next time you talk about the program publicly.

    For more ideas on how to recognize employees, check out our November 2016 blog post “How to Inspire Grateful And Successful People: Employee Recognition.”

  2. Update, update, update. You should NEVER stay silent on the status of an employee’s referral. Regardless of whether or not the candidate works out, you should keep in contact with the employee. If people feel like they’re sending recommendations into a void, the program won’t be very popular.

Now you’ve got employees using the program, and you’ve worked to keep them informed of how they’re benefiting you and the HR team. The final step is to communicate those benefits to your company leadership.

Step 4: Measure the Program’s Effectiveness and Communicate Its Value to Leadership.

“If you’re struggling to communicate the value of your HR department to the rest of the company, reducing employee turnover could be a good start,” writes New Talent Times. “CEOs think in terms of numbers, and if you can show that you’re driving down costs by improving employee engagement, you will go a long way in grabbing the boss’s attention.”

Employee turnover rates are a key performance indicator for many CEOs, because recruiting costs are so high. If you can show you are working to reduce it, this is good news to company leadership.

For HR managers who feel marginalized from the C-suite, finding ways to prove their value to the organization may go a long way to gaining a seat at the table.

As New Talent Times suggests, this needs to be proved quantitatively, if possible, so you’ll need to be tracking several performance indicators when you launch your employee program. This will give you the data you need to go to company leadership and describe the program’s effectiveness.

LinkedIn recommends tracking a few key variables:

  • The overall percent of hires who came from referrals
  • The percentage of referred candidates who hear from your company
  • The percentage of “qualified” referrals
  • Your workforce’s participation rate in the program
  • The quality-of-hire of referred hires
  • Average employee review scores
  • Overall turnover rates vs. turnover rates for referred hires

Basically, if you can demonstrate a correlation between your employee recruiting program’s usage and lowered turnover rates, you’re well on your way to communicating the benefits.


Recruiting top talent involves sunk costs that are hard to recuperate, but an employee referral program, when managed well, can go a long way to reducing theses costs. There are a few key takeaways to remember when creating such a program:

  • Your systems don’t have to be rigorous. A simple excel sheet will do to track performance month-over-month. A document containing the outline of your program will work to codify your systems, and a few slides should work to sum up the program’s effectiveness to leadership.
  • Keep your employees in the know. Be sure to install some kind of formal process to inform employees of your open positions. This could be an internal (or external) webpage, or a weekly email.
  • Track everything, and then show the results to leadership. Tracking routinely (month by month) will work better than analyzing all your data once per year.

Remember that defining your culture is vitally important! If you’re struggling to figure out how well your employees understand your values, Novareté can help through our Free Culture Calculator. The whole assessment (including registration) should take under 30 minutes. At the end, we’ll calculate your Culture Health Score, helping you identify areas of focus as you continue to grow your culture.