Here’s 5 things you can do today to improve employee referral programs

employee referral
By Luke Sheppard, founder of Sheppard & Company and author of Driving Great Results

Employee referrals are a game changer in the field of recruitment. What’s not to love about higher-quality candidates, a lower cost per hire, reduced employee turnover and bonus good will with your current employees?

In the world of equipment dealerships, employee referrals are an obvious, if not an underutilized, method of addressing the prevalent gap in technician and parts team availability.

However, it might come as a surprise to learn that while two-thirds of companies have some type of referral program, only 7 per cent of employees are hired through a referral. It’s astounding for something with such clear business benefits that so many employee referral programs fail to deliver meaningful results.

This doesn’t mean referral programs are doomed to fail.  Using the latest research in behavioural science, you can build a program in which your employees are engaged, and referrals fall into your lap like clean wrenches into a toolbox.

Why do so many employee referral programs fail? 

The reasons can be many, but here are a few:

  • It’s too complicated. Your current employees have to jump through hoops to participate in the program. Not to mention that it’s a pain in the you-know-what for the program administrator.
  • It’s too risky. The first thing going through your existing employees’ minds is what if my referral doesn’t make it? What’s the damage to my reputation?
  • The reward is not commensurate with the effort of the referring employee. Show me the money!
  • The referral goes into a communication black hole after it’s submitted. Neither the referring employee nor referred candidate is informed about where they are at in the process.
  • No one knows about it.  Maybe this should be the first reason. If you have a referral program for your organization, do your employees even know that it exists?
  • With these issues, it is not hard to see why  many referral programs lope along in the recruiting background, and successful referrals are interpreted as a “bonus” when the program does what it’s supposed to do.
Luke Sheppard

Are referral programs worth it?

At the beginning of this article are listed a few benefits of an employee referral program.  Do employers use referral programs to a significant measure of acclaim?

Consider that Salesforce, Google, Accenture, Intel and GoDaddy all use referral programs as a core part of their recruitment process, and source a large chunk of their workforce from referrals.

RELATED: Driving Great Results outlines 19 tools for success in business

A new hire via a referral cost about $2,000, while a traditional hire cost more than $4,129. As well, a referral requires 10 fewer days to complete the hire, a 13 per cent higher retention rate and two months versus three months  of onboarding time. 

Here are five things you can do to drastically improve the employee referral program at your dealership:

Spend the money. 

The cost of employee referral programs pales in comparison to the revenue you miss out on by having an open position for an extended period of time at your dealership (about $1,000 a day per technician).

Make it so easy that your employees hardly need to think about it.

If they provide a referral, your employees have to weigh the pros and cons. If they’re required to click-through a labyrinth of web pages and submit a copy of the referral’s resume, they’re less inclined to do it. It should be as easy as sending a text message. Enter a little bit of info and one click to send. That’s it.

Match the incentive to the risk. 

Many employees are hesitant to provide a referral for fear that their recommendation won’t work out. They are taking a personal risk by making a referral. Behavioural science tells us that a perceived loss can be worth up to twice as much as a perceived gain. The reputational loss that accompanies a failed referral is far more impactful than a small monetary gain. That’s why an increase in financial incentive does little to encourage more referrals. 

You need to do two things to address the bias:

  • Ensure your referral program makes it clear that all candidates go through your standard hiring process and that their performance outcome is independent of the referring employee.
  • Make the incentive uber-personal, or  provide the referring employee with  options from which to choose (offer rewards people actually want).  For example, rather than paying technicians $1,000 as a referral bonus, make their incentive personal and visible by having the local tool truck pull up and let them select $1,000 worth of tools for their personal use.

Pay them immediately.

Don’t prolong the referring employee’s risk by having them wait to receive their incentive. If they give you what you want in the name of a referral who you end up hiring, pay them straight away. If the referred employee doesn’t make it past their probationary period, that’s on you and not the referring employee (after all, you made the call to hire the candidate).

Celebrate the wins.

You need to combat the pre-existing confirmation bias that referral programs are ineffective. As so many referral programs really are ineffectual, your employees already perceive that your program is no different. Thus, a complicated process, absence of communication about the status, and misaligned incentives all serve to confirm their bias that referrals are a waste of their time. Give them every reason to question this bias with a smooth and transparent referral program. Take every and all opportunity to point out referring and referred employees to disrupt this bias further.

Employee referrals are one of the most underutilized methods of high-quality recruitment. If you want to attract and retain top talent, particularly in the post-pandemic era when construction is poised for a strong recovery, you need to tap into the pipeline of talent that’s in the minds of your existing employees. Make it easy for them to help you and they will.

Luke Sheppard founded Sheppard & Company in 2019 to help entrepreneurs and managers drive great results and realize their vision by using practical and proven tools to run their business.  The S&C team specializes in the heavy equipment industry and, with their extensive experience, education and industry contacts, helps dealers and OEM’s to fully engage their people and drive higher levels of customer engagement and profitability