IDS HR Studies Update 782, September 2004

Employee referral schemes

• analyses typical payment levels and the associated scheme rules
• considers how employers encourage staff to participate and recommend their friends
• looks at the methods used to measure the effectiveness of employee referrals
• discusses the pros and cons of this recruitment technique
• includes details of the schemes in 14 organisations.

Many companies are now finding employee referral schemes can successfully complement their existing recruitment methods. They offer a cost-effective means of attracting applicants, avoiding the need for advertising or agency fees. Moreover, new recruits who have been recommended by existing employees often come to the company with more realistic expectations and can provide a better cultural fit.

However, there are a number of potential drawbacks. One of the greatest concerns tends to be that relying too heavily on employee referrals could limit diversity in the workplace, with new staff recruited in the likeness of existing employees. But, provided that there is already a diverse workforce in place this ceases to be such an issue.

Under an employee referral scheme, existing staff are offered a cash incentive to recommend friends or former colleagues for vacancies within the company - the bonus payments are only made if the recommended candidate is successful in his or her application. The payments are also typically dependent on a number of other conditions being met. There is usually a probation period which new recruits must complete satisfactorily before the employees who recommended them are paid a bonus. There may also be eligibility criteria governing who can make a referral, as well as restrictions on the types of vacancies covered.

This in-depth article is the lead feature in the September 2004 IDS HR Studies Update.