Here at Octopus Ventures we back teams because we believe that the people who make up a company are the greatest factor behind its success. When it comes to building teams, referrals from existing employees are widely seen as one of the best ways to source talent, so it’s no surprise that almost every company has an employee referral scheme to incentivise current team-members to introduce their network to the company. Typically, referred employees are seen as:
- More cost effective, as referral bonuses are much lower than recruiter fees and the average referred candidate is more likely to get hired
- Better employees, as both retention and performance stats are better on average
- Positive for team cohesion, since there will be deeper ties between members in the team
However not all employee referral schemes were created equal. A recent report from Drafted found that 91% of sampled companies offer a simple cash reward for a successful referral. While this is a good start, there is a lot more that you could be doing if you want to add more candidates into your referral funnel. Having spoken to Heads of Talent from a variety of early stage companies, we’ve come across some tactics that can supercharge your process, but first:
Lay the groundwork
You could be getting more referrals from your existing scheme without too much additional effort by laying some effective groundwork:
Communicate your scheme clearly and often
The referral bonus is just one aspect of an effective scheme. Arguably of equal or more importance is ensuring that your team is aware of the scheme, up to speed on the sort of people you’re looking to hire, and able to take time to think about whether they know someone suitable. Some teams send weekly emails about open positions, while others reserve 5–10 minutes at team meetings to go into a bit of detail about what sort of backgrounds might be most suitable for the roles, which ensures that everyone spends at least the time in the meeting thinking about anyone who might be a fit. Some companies include a set number of referrals into team OKRs, and one we spoke to even ran sessions to go through LinkedIn connections!
Keep referrers engaged in the process
If a member of your team cares enough to recommend someone they know to join your mission, she will definitely want to stay up to date on how her friend/ex-colleague/school chum is doing! Giving your referrer a top shelf experience throughout the process will be just as important as ensuring that the candidate has a good experience — not only will this encourage her to keep referring relevant candidates, but just like any good experience should generate positive word of mouth within the team.
Once you’ve got the basics down, there are a number of things you can do to give a significant boost to the effectiveness of your referral scheme.
Reward referrals, not just hires
In order to hire more awesome people, you need to fill the top of the funnel. Often members of your team may underestimate the degree to which their contacts are a fit for the roles you’re trying to fill, so just providing an incentive for a confirmed hire may not be enough to encourage them to make the introduction. You’ll need to actively target the top of the funnel, rewarding referral behaviour and not just successes. This could take the form of a raffle for everyone who referred a candidate, or offering small but visible gifts such as a limited run piece of company stash. If a bit of healthy competition is appropriate for your team, then you could create a referral leader board and offer a prize to the top referrer.
Get creative with rewards
You need to offer a high enough reward to incentivise your team to put in the time and effort to think about their network and make introductions (this amount depends on many factors — team culture, sense of mission, level of compensation, etc). This amount is also likely to be different for different levels of seniority, because the seniority of the colleagues most likely to refer candidates tends to correlate with the seniority of the role that’s being filled, and those higher up will likely need a higher referral bonus to put in the time and effort, ceteris paribus. However, beyond this “activation amount”, higher monetary rewards don’t always generate more referrals and you need to find other ways to engage your team. Some companies have found that donating cash towards a referrer’s charity of choice got employees excited. Another team we spoke to hit two birds with one stone by rewarding employees with a team-building event.
Consider creating urgency
A number of companies we spoke to created time-bound referral programmes in order to encourage a sense of urgency. One company saw a 5x increase in the number of high quality referred candidates when they significantly increased the referral bonus (doubled or more) for a period of 5 weeks only. Another team saw great results when they offered an extra bonus for those who referred five qualified candidates within the first 3 days of a new scheme. Yet another company introduced some competition within the team by offering a 50% uplift on the bonus paid for the first hire made through a referral. These time-bound structures only work because they end, so use them sparingly — if employees get used to seeing them frequently then they can become far less effective!
While employee referrals are highly regarded, they are not without their risks. Here are a couple of key things to be wary of.
Don’t forget culture
If you’re hiring from your existing pool of employees, then chances are you’ll be hiring similar people. At some companies this can lead to a culture of homogeneity and stifle diversity of thought and creativity in ideas. When you’re running a referral programme, be extra careful and conscious in the sort of team you’re building. Often the answer is having a diverse team to begin with!
Watch out for interview coaching
When you create incentives for employees to bring in new team members, some may inevitably try a bit too hard to get their reward. People coaching their referrals through the process is not unheard of. It’s hard to know where the line is with this one — on the one hand you certainly don’t want people being coached into interviewing well without necessarily being good candidates. On the other hand, it’s natural that referrers and referred candidates will chat about the role, the company and what to expect. For the most part, those referring candidates should get this right, but sometimes it’s worth being extra careful by keeping interview content under wraps, or even designing incentives that encourage people to submit qualified candidates but give no extra reward if they get hired. We find though that calling this out in advance should usually be sufficient.
There are a lot of things you could be doing to create an awesome employee referral programme that really boosts your hiring efforts and team morale — one company we spoke to said that their team literally cheered and whooped when their new referral scheme was announced! We hope that this article gives you some good ideas for taking your scheme (and team) to the next level.
Finally, we’d like to thank all the companies who offered their time and experience to help us create this article.