With the competition surrounding identifying and attracting outstanding employees in today’s marketplace, employers are often too quick to overlook what can often be a top recruiting source… their own employees. Using employee referrals as part of a recruitment and hiring process offers employers several distinct benefits.

Cost effectiveness: According to a recent survey conducted by the Society for Human Resources Management (“SHRM”) the cost to the company of an employee referral averages approximately $1000 for an exempt employee and $500 for a non-exempt hire. Compare this to the cost of print ads, employment agencies and executive recruiters.

High quality candidates: Current employees know the company’s culture, and are likely to present candidates that they believe will “fit in.” As outstanding referrals reflect well on the referring employee, employees will strive to identify top candidates and avoid poor performers.

Speed of hire: Employees begin the process of “selling” the company to the candidate even before the interview, and candidates referred are generally ready to make a move. As a result, the company spends less time selling itself and the position, and has more time available to handle other pressing issues.

Improved morale: Employees understand that their opinion is valued, and appreciate the opportunity to contribute to the success of the company.

While many companies have some form of employee referral program (“ERP”) in their recruitment repertoires, the effectiveness of these initiatives varies dramatically. Some ERPs account for 40% or more of an organization’s new hires, yet others rarely produce a referral. By considering the guidelines discussed below in the creation of its ERP, an employer can increase the chances that its program will become a highly productive recruiting tool.

Perhaps surprisingly, while the opportunity for reward is important, the success of an ERP does not hinge upon the amount of money paid to employees for referrals. Studies have shown that awards of $1000 or less are sufficient to motivate employees to make referrals, and a significant number of employees say that they would be motivated by non-cash rewards such as gift certificates, theater tickets and extra vacation days. Paying too much can actually be counterproductive, as employees may be inclined to spend more time “head hunting” than performing their regular job duties.

According to the SHRM survey, the single most important factor contributing to the success of an ERP is communication and promotion of the program. It is not enough to just have an ERP; employers must keep employees thinking about prospective candidates. Promote the details of the plan consistently and often, through as many channels as possible, including orientation, the employee handbook, newsletters, paycheck stuffers and e-mail. Reinforce participation in the ERP by publicly recognizing individuals who make referrals, whether or not the referrals result in an actual hire. Organize incentive events, such as periodic drawings for larger prizes, entering those employees who make multiple referrals over the course of the year. Make these events enjoyable, and publicize the prizes and the winners in order to generate a “buzz” about the ERP. A successful ERP promotion will send employees back to their desks to review the latest openings so that they can be included the next time.

Of course, employees cannot make meaningful referrals if they are not aware of the company’s needs. Employers should keep employees current as to open positions, including job descriptions and requirements. Publicize the openings in a variety of places-- post them on bulletin boards and the company intranet site, and list them in newsletters. Have the job descriptions available in e-mail format to enable employees to easily send them out to friends and business acquaintances.

One of the most common complaints about ineffective ERPs is that after employees refer a candidate, they are not kept informed about the progress of the individual’s candidacy. Establish a system to keep employees up to date as to the status of the decision making process. Contact referrals in a timely manner and treat them with courtesy. If a negative decision is made with respect to a candidate, notify both the candidate and the referring employee promptly. When companies offend or ignore applicants, or treat them unfairly, they embarrass the employee, and deter them from making referrals in the future.

Once the company hires a candidate as a result of an employee referral, pay the reward promptly. Don’t put employees in the position of having to follow up to collect what is due them. Although it is reasonable to expect that the new hire remain with the company for a minimum period before the employee is entitled to receive the full award, do not make the award totally contingent on a minimum period of service. If the new hire leaves, it is not the referring employee’s fault, and withholding all payment will undermine the effectiveness of the ERP. Instead, the employer might consider paying half upon hire, and the balance after the minimum period of service is met.

It is not enough for a company to merely give lip service to its ERP. The organization’s executives must commit to the success of the program, and continually reinforce the principles that the strength of the company lies with the quality of its workforce, and that recruiting is everyone’s responsibility. Even the most well designed ERP will fail to be effective if the organization does not consistently make hiring the best people a priority.