Do you have a “feeling” that your employee referral program brings you the best employees, workers that also tend to stick around longer than others?

Your gut may very well be right.

In fact, well-known talent management consultant Dr. John Sullivan has written that referrals should be the “foundation of any excellent recruiting program, followed by employment branding and then recruiting at professional events.”

Yet all is not rosy regarding referral programs because, as Dr. Sullivan continues, because

“a good number of them (well over 50 percent) provide not better than mediocre results because they have inherent design flaws. These design flaws occur because the directors of these programs invariably copy what others do as opposed to using metrics and data to tell them what works, why it works, and what doesn’t work.”

Meet with your CFO to determine which metrics are best for your company, Dr. Sullivan advises. Your finance department is focused on the bottom line and, since a referral program often “costs” a company money (in referral fees paid to both the old and new employee, signing and retention bonuses, etc.), your head of finance will want to help you come up with the proper metrics.

But if you can find only three metrics, let it be these, Dr. Sullvan says:

  • Measure and compare the performance appraisal ratings of those referred for hire compared to those sourced via other means. Use any “direct measures of performance (counting output)’ you may have. Other measures to consider could be bonus and compensation rates or even customer satisfaction ratings. But be sure to be consistent.
  • Determine the “voluntary termination rate of new hires within six months and after one year. Then compare it to the voluntary turnover rate of hires from other sources.
  • Compare the percentage of termination rates within six months of those referral hires and those sourced by other means.

Other actions Dr. Sullivan recommends to improve your referral program’s effectiveness:

  • “Survey employees who successfully refer high-quality people to find out what drives them to participate.
  • Survey employees who don’t refer to find out why they don’t participate
  • Track those referred candidates to see who became finalists and which of those finalists accepted your offer of employment.
  • Periodically test your bonus payout by raising/lowering it in a few jobs to see if it effects the referral volume and quality.
  • Quantify the dollar impact of the program. It’s liable to be millions.”

To read Dr. Sullivan’s white paper on referral program metrics, click here.

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