How to build a strong employee referral culture

A strong referral culture can be a competitive advantage in the talent wars. Here’s how to create a workplace that your employees will want to recommend to friends and former colleagues.

A strong referral culture not only helps streamline the recruiting and hiring process, but also delivers benefits such as increased engagement, collaboration and job satisfaction -- not to mention improving retention and loyalty.

The recent Active Job Seeker Dilemma survey from Future Workplace, a research firm and workforce management consultancy, and, a career and hiring marketplace, polled 4,347 U.S. job seekers and 129 HR professionals and found that 71 percent of those surveyed say referrals from existing employees were the source of their best hires.

Culture club

What makes a great employee want to refer their friends, family and former colleagues? Culture, benefits, flexibility and a sense of mission and purpose, says Dan Schawbel, partner and research director at Future Workplace.

"Culture is your most important competitive advantage. As long as you're paying people fairly, of course, then they are going to look for factors aside from that as positives or negatives -- they want meaningful work, solid benefits, flexibility, and those are the things they'll talk about with friends, former colleagues, family," Schawbel says. If you already have those things, you're well on your way to building a referral culture.

[ Related story: 4 signs it's time to look for a new job ]

Referral madness

This is where smaller companies and startups have an advantage, since they can build this culture into their company from the get-go, says Eric Breon, founder and CEO of vacation rental management company Vacasa.

Through referrals, Vacasa's grown from its two original employees to over a thousand, and though emphasizing referrals as a means to streamline hiring wasn't intentional, the overall focus on meaningful work and a great culture certainly was, Breon says.

"We wanted to focus on organic and natural growth and on developing a culture where people were excited and passionate about what they are doing. So, we looked at the things that make people want to leave jobs and we focused on doing the opposite. That really worked -- and those same factors are driving referrals, that's impacting our retention and our productivity in a really positive way," Breon says.

[ Related story: Finding, retaining IT talent still a struggle ]

Passive talent

A strong referral culture also allows companies access to a highly coveted talent pool -- passive and off-the-market candidates. While these workers might be happy in their current role and may not be actively looking for a job, a strong recommendation from a friend or former colleague could nudge them to consider a change, says Breon.

"It's rare to see a stellar candidate that's out of work, especially in technology; the rising stars, the rock stars in the company aren't necessarily looking and if they are, they might not otherwise consider our company, but the beauty of a strong referral culture is we can get to them," he says.

The Future Workplace study backs that up. In today's employment landscape, job seekers who are "passive" -- currently employed but open to considering other opportunities -- with a wide network of referrals have the advantage over job seekers who are "active" -- those who are currently unemployed but seeking a job.

Eighty percent of the HR professionals say passive job seekers become the most effective employees based on a number of assumptions, according to the survey. When asked to identify the biggest benefit of hiring a passive job seeker, 44 percent of HR professionals say they have more experience; 44 percent say they possess valuable skills and 42 percent say they take their careers more seriously.

[ Related story: Investing in your employees' career growth drives satisfaction ]

Acknowledging action

Most organizations already have a process in place to handle referrals, but there are ways to make the policy even more effective, says Rich Milgram, CEO of job search marketplace You not only need to remind your workforce of the current referral policy, but make sure to reward and recognize them, too.

"We offer a referral bonus to each employee if they recommend someone who's hired and stays for 90 days. That's pretty standard, because you have to put your money where your mouth is. But how many companies also take time quarterly or even monthly to recognize not just new hires, but the people who referred them?" Milgram says.

This is an important aspect of a strong referral culture that's often overlooked; public recognition and praise for what you've brought to the company, he says.

"It's very simple: not only acknowledge the referred employee, but the people who are doing the referral. It's as simple as saying, 'Welcome, Joe, to the team, you're doing great work. He was referred by Sally -- great work, Sally, here's your bonus check and a round of applause,' and then you are publicly supporting referrals," Milgram says.

This can also reinforce the importance of team building and bonding within your organization, Milgram says. The strength of those bonds impact retention, loyalty and productivity.

"One of the greatest aspects of a culture that encourages referrals like this is that it strengthens bonds within teams and that's good for everyone. If you are an employee and you feel you have friends where you work, if you feel as though your colleagues are 'family,' you're going to feel they're a greater, more important part of your life and that's going to impact your willingness to stay, be engaged and productive at work," Milgram says.

A strong referral culture thrives when employees feel valued, have meaningful work and are recognized and rewarded for their achievements, says Schawbel. Those factors are key to creating a workplace to which people want to invite their friends, former colleagues and family.

"If you're a happy, thriving employee, if you're in a great organization with a strong culture, then you're going to be one of that company's best recruiters," he says.

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