Staff referral schemes

Employee referral schemes are a cheap and effective way to introduce new talent. Jamin Robertson looks at how it is done

Case Study: The Flight Centre

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Employers operating in a tight labour market are realising the value of enlisting staff as head-hunters. Not only does cutting out advertising and agency middle-men slash the recruitment bill, the chances are that a skilled worker will bring on board a like-minded cohort.

Staff referral schemes are nothing new, but are still only used in about a third of UK companies. The benefits of this method of recruitment are obvious. The only fee goes to the employee referring the newcomer, and the cost is at the employer’s discretion.

Dr Steve Leybourne, senior lecturer in human resource studies at Plymouth Business School, explains: "Employee referral schemes are among the cheapest methods of recruitment, but staff also take a joint responsibility for the quality of the person they’re putting up, [because] they think ‘I’m going to look like a [fool] if this guy’s crap’. So the introduction comes with a level of base credibility, which takes some of the risk away. It can be very beneficial, as long as there’s a fair amount of transparency about the sort of person the organisation is looking for."

And to enlist staff participation, the lure of cold, hard cash is as strong as ever. In a bid to attract highly-skilled staff in exploratory and production fields, Royal Dutch Shell offers £1,800 before tax. The global fuel conglomerate introduced the scheme in the UK following a successful pilot in Asia.

"It’s a well-known method of recruitment for us in other parts of the world. We really need to be hiring skilled technical staff such as geological and chemical engineers, and with 9,000 staff in the UK, that’s a huge network of contacts people have in the industry," says press officer Bianca Ruakere.

Money also talks at law firm CMS Cameron McKenna, which pays up to £5,000 to employees introducing new talent to the business. Since introducing the scheme in 2000, 43 employees have received a payment. Keith Pearse, director of people and development, says: "It is cost effective given the cost of hiring lawyers."

Alona McAuley, a recruitment consultant at consultancy Jardine Lloyd Thompson (JLT), which offers staff £1,000, adds: "Senior well-networked staff know the competition [and] they know the market, so it’s a known quantity. We probably recruit around 10% to 15% of our staff from referrals. It gives us more experienced staff at a lower cost, and it’s something we’re keen to keep up the momentum on."

And on the high street at Nationwide Building Society, it seems only natural to reward staff with cash. Corinne Williams, senior manager for resourcing, says its scheme, which offers £500 and advertises vacancies to employees online, has proved very successful. "It’s got big cost [savings] implications and it allows our existing employees to benefit."

Large organisations running referral schemes at all levels often structure bonus payments accordingly. Chris Charman, an executive compensation and rewards practice consultant at Towers Perrin, where payments range from £750 for bringing in an administrator to £3,500 for referring a senior-ranking consultant, rates such schemes highly. Referrals make up between 25% and 30% of the firm’s hires.

He points out junior administrative staff generally have a higher level of turnover than others, so a tailored payment reflects the likely shelf-life of the hire as well as the scarcity of the candidate’s skills. "It’s important to tailor the reward to what’s offered in your organisation. Cash is appropriate for us, but at somewhere like Asda, a day’s extra holiday might be more valuable for staff than the equivalent monetary reward. It makes sense to be flexing the bounty relative to the calibre of the person coming on board. There’s a very small group of people who know one another, so it’s much more effective to use that network than an executive head-hunter."

Nationwide, however, does not distinguish according to rank. "[In the interests of fairness] why pay different rates for different jobs?" says Williams.

Like many other employers, Towers Perrin ensures it is satisfied with the candidate before paying out, with half the bonus conferred after one month of service and the remainder paid after three months.

But travel company The Flight Centre (see box above) diverts away from a purely cash-based incentive, using trendy consumables as well as cash to encourage employees to take part. Anna Daniels, team leader of recruitment, says: "It’s about finding out what they’d like. We’re recruiting constantly and, because we’re commission-based, often staff are motivated by money but that won’t cover everyone."

While bonus levels vary widely, most organisations offer at least a few hundred pounds. Employers recommend the carrot should be big enough to gain peoples’ interest, and tying rewards to a minimum length of service will ensure that money is paid only when the new employee is likely to stick around. The referring worker is also unlikely to jump ship given the lure of an upcoming bonus.

Bonus levels should reflect the time spent by employees sourcing suitable candidates. "In all honesty, it costs us a lot more to recruit from an agency, and we’ve taken the view that [the bonus] needs to be significant so people will do it. They have to talk to [the candidate] in detail, so we’re paying them for the time invested. It’s not just about them handing us a CV from someone they know," says Daniels.

Employers may sing the praises of referrals but academics caution against relying on one channel of recruitment because it may land organisations with an office-load of cardboard cut-outs. Jacqueline McIntyre, principal lecturer and university teaching fellow at Plymouth Business School, says: "It can be seen as a job for the boys. You can get clones with very similar views and attitudes, resulting in a lack of originality and creativity. [Considering] equal opportunity and diversity issues can become a problem. [If employers] want it to succeed, those candidates [from staff referral schemes] need to go into a pool of applications, and be used as part of a wider recruitment drive."

A desire to promote equal opportunities ensures Nationwide keeps a close eye on its recruitment policy. "You need good management information to see [that there is] no discrimination," says Williams.

JLT’s McAuley concurs: "I’m worried about high volume areas like administration, where you might find half-a-dozen friends in the same area. It can be difficult to get fresh ideas and attitudes."

So clear rules are necessary to ensure the organisation gets the right output. "The danger is when staff see it as money for old rope, and refer all their pals. The company may end up wasting time on a long list of names. It needs to be clear and transparent what the organisation is looking for. If the employee thinks [my referral] can’t do that [task] then he won’t waste his time," says Plymouth Business School’s Leybourne.

Nationwide’s Williams adds: "If someone refers a family member and they are not successful, it can be difficult. You have to be careful to operate a policy that is fair and open."

But what about when good schemes go bad? Newcomers may feel they have a stake in the referrer’s claim, leading to the odd cat-scrap over the bounty. Leybourne concludes: "It doesn’t matter from the organisation’s point of view, it’s still cheap recruitment. I’d say there’s scope for negotiation. My son [has] just signed up my daughter [to his Cardiff-based firm and] he’s giving her a hundred quid."

Case Study: The Flight Centre

The Flight Centre currently offers £500 to staff who refer candidates that successfully negotiate training, which is paid alongside their salary.

Anna Daniels, team leader for recruitment at the travel company, said an extra incentive was introduced last year offering a bumper reward of £5,000 to the top performer. The company has also given away flat-screen TVs and DVD players in past campaigns.

Daniels says retention levels among referred staff tend to be higher than through traditional channels. "The individual knows a bit about the company, as [the referrer] gives them personal insights into the ups and downs, and they buy into it a bit more. Nothing surprises them. We’re looking for fun, driven, dynamic people that enjoy travel. They are like-minded but that’s the people we look for and they work well."