The Importance of Employee Referrals
In the realm of customer experience, there is something called the Net Promoter Score (NPS), which is used to measure customer loyalty by asking a very simple question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Many organizations have adopted a similar approach with respect to measuring employee loyalty with an eNPS score (the e stands for employee). The question is almost identical, but instead of focusing on the customers, it asks, “How likely is it you would recommend this company as a place to work?” These questions are fine to ask, but I have found that organizations that create truly great employee experiences actually see a high referral rate. That is, employees like working there so much that they tell others to apply.
Many organizations have referral programs where they offer financial incentives and rewards for employees who refer others to work there. Referral programs have been quite popular as of late, thanks to social media and our ability to quickly build networks that organizations would love to tap into for prospective candidates. Although the cause is noble, it misses the whole point of why people refer others for anything. If you go to eat at a restaurant and the service and food are terrible, would you refer your friends to eat there if the restaurant gave you $50? Probably not. What if you had this same experience with a babysitter, house cleaner, mechanic, or hotel? Again, chances are that if you don’t have a good experience with something, you won’t refer your friends or family members to that establishment, even if you get a financial reward. So why do we think that this rule doesn’t apply inside our organizations? It absolutely does. Employees won’t refer other people to work at your organization just because you promise them a financial reward. Perhaps more important, would you even want employees to refer their friends just because they are getting a cash reward? When the only incentive is money, the outcome will always be transactional, which is not a good way to think about your people. The financial reward acts as an incentive only if the employees genuinely have a good experience working there to begin with.
Google figured this out quickly. Originally it set its employees referral bonus program at $2,000, meaning that an employees would get $2,000 for referring someone who got hired. It wanted to increase employee referrals, so it did what any company would do: doubled the bonus to $4,000! This approach proved unsuccessful. According to Laszlo Bock, Google’s former senior vice president of people operations, “It turned out that nobody was meaningfully motivated by the referral bonus. People [who referred other employees] actually loved their work experience and wanted other people to share it. Only rarely did people mention the referral bonus.” So what was Google’s solution? Simple—it just made it easier for employees to refer others by nudging them with relevant openings and hosting “Sourcing Jams.”
People refer others to work at your organization when the employee experience is great. That’s why this is a useful question to ask and a metric to look at. According to a Facebook executive I spoke with, their employee referral rate is 30-50%, which is not surprising, considering Facebook scores higher than any other organization in employee experience, which shows that people truly want to work there. We also have to remember that the employees referral door swings both ways. Sometimes employees will refer their network to work at an organization, but sometimes they will send warning signs to anyone they know who might be applying for work there.
Employee referrals measure if employees genuinely like working for an organization and if they are loyal and committed. To increase employee referrals at your company, create a goal and actually track it. Try creating programs that don’t focus solely on financial incentives for employees, but create ways to get referrals for the right reasons. Focusing on employee experience and referrals can fill your pipeline of qualified potential employees in no time.
Article republished with permssion. Original publication can be found here.
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