Herrenkohl’s 5 Insights for Better Hires from Your Employee Referral Program


People have asked me for years whether I think they should have a program that rewards employees for referring potential new hires. I’ve never been against them, but over the last several years I have been counseling executives to make sure they have such programs in place.


People have asked me for years whether I think they should have a program that rewards employees for referring potential new hires. I’ve never been against them, but over the last several years I have been counseling executives to make sure they have such programs in place.  Here are my top 5 insights on these programs, why they are valuable, and how to make them work well.

1.  People refer to the culture you create. The stronger the culture, the better the referrals.

The quote “people you refer to the culture you create” comes from a business owner CEO in a Vistage group to which I recently spoke. Mike is CEO of an engineering and manufacturing business with a couple of hundred employees. He has an interesting case study to back this quote up. For years he employed a Director of Operations who complained about the performance of the company’s manufacturing team. This included the relatively weak new employee referrals this group made. Then Mike moved the old Director of Operations out and replaced him with a stronger leader.   Engagement, performance, and results in the manufacturing operation improved. Guess what? So did the quality of the people referred by these employees. When better leadership created a better culture, employees were willing to refer better people.

2.  Employees take referrals seriously because they don’t want to look bad.

Employees know that the referrals they make reflect on them personally. So, they refer people who they think will succeed in your current environment and culture. With few exceptions, they are not going to refer people who cannot or will not do the job. Neither are they going to refer people who don’t seem to fit your culture and values. If you are consistently displeased with the quality of people your employees refer, maybe you need to learn more about their perceptions of your culture and working environment.

3.  200-300% improved retention rates are not unusual for referred job candidates.

Chris, the CEO of a building material distributor with 300 employees, told me that the employees his company hired from internal referrals often stay with the company 200-300% longer than people they find other ways. Why? Because his employees know what it takes to do well in their company. As a result, they are more likely to refer someone who has the skills, values, and personality to do well in that particular business.

4.  Employee referrals come with a built-in mentor: the employee who refers them.

This same CEO also likes the fact that referred employees come with a built-in mentor in the person of the employee who referred them. This makes sense. Your people have skin in the game when they make referrals. They are vested in seeing the person be successful, so they do what they can to help their newly-hired friend be successful.

5.  Never shortcut the interview process for someone an employee refers.

The worst thing you can do is shortcut your vetting process for a candidate because they are referred. Everyone loses from a bad hire, and this is all-the-more true with employee referrals.  In addition to the financial and emotional costs that accompany every bad hire, too many bad hires from employee referrals will make the referrals dry up. However, if employees know that their only responsibility is to make the referral, and that the company takes full responsibility for making the hiring decision, you do all that you can to ensure that the strong referrals keep on flowing.

If you are interested in more information on how to structure an employee referral program for hiring, feel free to send me an email, eric@herrenkohl.com

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