Scrambling for Talent? Here’s Why Top Companies Rely On Employee Referrals

September 30, 2015 – More than 50 percent of referred employees have been in their current position for more than five years, supporting various findings that have cited employee referrals as a top source of hiring, according to “The Impact of Successful Employee Referral Programs,” issued by iCIMS, Inc.

This latest research study, which analyzed data from more than 500 human resources professionals, was designed to recognize strong components and identify gaps in employee referral practices. For companies, this positive stick rate means that employee referrals can be considered stable, and that they would not have to consider turnover from referred employees as much as for non-referred employees, saving time and money.

With 85 percent of employers expecting their companies’ hiring to increase or stay the same, HR executives are scrambling for ways to identify qualified employees. Hiring plans are the most upbeat in eight years, as the American labor market shows broad-based growth. As such, if current trends continue, HR executives polled by Hunt Scanlon Media report that a full blown talent crisis could be looming.

“The talent supply and demand imbalance is becoming a front burner concern for many talent acquisition professionals who are either locked in growth mode as the economy expands or are about to step into an improving cycle,” said Scott A. Scanlon, founding chairman and CEO of Hunt Scanlon Media based in Greenwich, Connecticut.

“Clearly, a sense of urgency is building and discussions over competitiveness are developing as a result. Whether this leads to an eventual tipping point, and a full blown crisis, remains to be seen. But we haven’t heard anyone ruling out that possibility,” he said.

The study found that employee referrals are the most significant source-of-hire for employers, bringing in top talent that increases quality-of-hire, instances of cultural fit, positive results, and decreases key metrics such as cost-per-hire, time-to-fill, and turnover. Yet, only two-thirds, or 63 percent, of employers currently have a documented referral process in place.

However, most employers hire nearly 40 percent of their staff from employee referrals. Across all company sizes and industries, on average, 24 percent of new hires come from an employee referral.

The majority of employers find that referred employees outperform other employees on most aspects of overall company fit, which is highly valued by employers when evaluating applicants. Overall, referred employees are more satisfied with their current job over the job they had previously in which they were not referred.

On average, 24 percent of employee hires originate from a referral. Larger companies with 1,000 employees or more tend to hire more referred employees (27 percent) compared to smaller companies (14 percent). Likely contributing to this trend is 69 percent of large companies having a documented referral process compared to 46 percent of smaller companies.

“Part of the reason employee referrals are ranked so successfully by employers is because they’re effective at bringing in talent that easily fits with a company’s existing culture,” said Mr. Scanlon. In fact, according to the iCIMS study, 76 percent of employers identified ‘cultural fit’ as a high priority when screening job candidates.

Recent research by The Aberdeen Group supports these findings. Organizations in its talent acquisition report ranked employee referrals as their most successful source-of-hire, above job boards, social networking sites, and corporate career pages. Another study by CareerBuilder found that 88 percent of employers rate employee referrals above all other sources for quality of hires.

“(A great referral program) allows you to turn your entire workforce into recruiters,” said Kara Yarnot, founder of Meritage Talent Solutions. “When you only have so many recruiters and so many resources to reach out to candidates, it helps to have a great referral program to empower all of your employees to help in sourcing.”

The time to fill a position is much quicker using employee referrals than other types of hires. On average it takes 29 days to hire a referred candidate, compared to 39 days to hire a candidate through a job posting or 55 days to hire a candidate through a career site, according to research by JobVite.

Technology to support recruitment and tracking for referred candidates was cited as one of the biggest opportunities for improvement in iCIMS’ study. Characteristics for a successful programs include creating a quick and simple internal referral process and timely recruitment communication with referrals.

“Our latest research provides insight on how companies can best leverage employee referral programs to help accommodate for the recent uptick in hiring volume,” said Susan Vitale, iCIMS chief marketing officer. “By analyzing data on cultural fit, hiring tools, and employee satisfaction, we were able to pinpoint key factors that help companies drive success and retain best-fit talent through the employee referral channel.”

One startup that is helping companies fill job openings through crowdsourcing and monetary incentives – the latest twist that takes employee referrals to an entirely new level – is ReferralMob. Launched in June, the mobile and Web app company has $500,000 in cash rewards in its coffers to help recruit employees at Massachusetts-based companies. To date, those companies have awarded close to $6,000 to users who help the companies fill job openings. ReferralMob is backed by $1 million from undisclosed investors and its founders; it is considering expansion to other cities later this year.

“We are Uberizing the recruiting industry,” said chief executive David Samuels. “We are expanding the number of paid referrers for a job beyond companies and agencies to tens of thousands of interconnected influencers. Because we are democratizing the referrals of these candidates, our customers can also expect more diversity among qualified applicants.”

“ReferralMob is designed to capitalize on the positive impact that referrals can have and make them easier to facilitate by leveraging the power of crowdsourcing,” said Mr. Scanlon. The company also makes sure that people get paid for referring successful hires. After someone refers a colleague, friend or acquaintance to a job, he or she can split up the check once they’re hired.

Crowdsourcing — enlisting the services of a number of people via the Internet by outsourcing tasks to a broad, loosely defined external group of people — has become somewhat of a global phenomenon. The term was first coined nine years ago by Wired magazine author Jeff Howe, who suggested that crowdsourcing encouraged the best qualified and most creative participants to join in on a project. Wikipedia, the collaboratively written and edited online encyclopedia, is widely considered to be one of the best known examples.

“Crowdsourcing is the next evolution of social media platforming in the talent space,” said Mr. Scanlon. “It has the potential of revolutionizing the hiring process at every single level, from entry level jobs to senior level corporate positions, because we all know somebody, and that’s the beauty and the power of crowdsourcing. Everyone joins in. Crowdsourcing is, for all intents and purposes, an employee referral system on steroids.”

Contributed by Scott A. Scanlon, Editor-in-Chief and Dale M. Zupsansky, Managing Editor, Hunt Scanlon Media