By Dr. John Sullivan

Employee referral programs should be producing 50 percent of all of your hires because they are the most powerful corporate recruiting tool by far. Over many years, data has revealed that scientifically designed corporate employee referral programs, compared to all other sources, literally produce both the highest quality of hire and the highest percentage of hiring volume. However, many talent leaders are surprised to learn that when the unemployment rate is extremely low, and the economy is booming, the quality of the referrals improves significantly. Below are the top reasons why the quality of referrals at your firm should be improving along with the economy.

The Top 8 Reasons Why Referral Quality Improves in a Strong Economy

Some of the many reasons why you should re-energize your referral program now include:

1. Low unemployment means fewer weak “they found me referrals” — By far the highest impact factor that degrades overall referral quality is when a firm receives a high percentage of “they found me referrals.” In these cases what has happened is an unknown or barely known individual proactively approaches them and asks directly to become a referral. These are uniformly inferior because instead of fully knowing and completely assessing the referral (the factor that makes a referral so powerful), the employee refers someone who they don’t really know to be superior. When individuals are desperate for jobs, these weak “they found me referrals” can reach 60 percent of all referrals. However, with a tight job market and extremely low unemployment, fewer individuals are desperate, so they don’t need to approach strangers in order to get a job. Without a glut of “they found me referrals,” the overall quality of referrals at a firm goes up dramatically. Incidentally, firms should make it a policy not to accept a single “they found me.”

2. Employee referrals are the most effective recruiting approach for employed “passives” — A 3.9 percent unemployment rate means that literally almost every desirable prospect now has a job. That becomes a problem when nearly every corporate recruiting and sourcing approach is designed to attract unemployed people who are actively looking for a job. So, when almost 96 percent of prospects are employed, corporate talent leaders should shift their emphasis to approaches that are designed to attract the so-called passive prospect. And the most effective method for attracting passives by far is employee referrals.

3. Referral programs increase your ability to sell top talent — Every firm is operating in a highly competitive talent marketplace where very few top candidates are unemployed. And this competition makes it extremely difficult to sell top candidates who already have a job and the possibility of multiple offers when they decide to leave. Fortunately, one of the most reliable features of employee referrals is that the referring employee knowingly helps to sell the candidate on your opportunity. And in addition, they also continually encourage their referrals throughout the hiring process. This added support means that top referrals are much less likely to drop out during the hiring process and to accept when an offer is made. This added selling capability and support taken together will lead to the hiring of many more top candidates.

4. Referrals can be among the fastest hires — In a highly competitive talent marketplace, the very best candidates get multiple offers, which causes them to be off the market quickly. Fortunately, because referrals by your top employees have already been assessed and sold by them, a much shorter time to fill is possible if you have an expedited referral program.

5. Employees are more willing to help because they feel the pain from longer position vacancies — When the competition for talent is extremely high, positions take much longer to fill. And of course, this talent shortage harms team performance, which means that everyone is more aware of the negative impacts of weak recruiting. So managers are much more willing to encourage quality referrals. Top-performing employees now see the direct benefit to themselves from ramping up their efforts to seek out and make quality referrals. And because the best referrals come from top performers, a higher percentage of referrals coming from these top performers will result in an increase in your overall quality of hire.

6. A focus on innovation drives expanded collaboration — with the economy booming, every firm is pushing for more innovation. And because increased collaboration is an essential driver of innovation, this corporate focus on innovation forces your best employees to dramatically increase their collaboration with others outside your firm. The increase in external collaboration has the additional consequence of increasing the number and the quality of the external connections of your employees. In fact, because innovators now have so many job choices, the only way to effectively contact and recruit them during low unemployment may now be through employee referrals.

7. More funding for employee development increases contacts with other learners — With the economy booming, firms have more resources to fund employee learning and development. And with the accompanying increased Internet-based and conference-based learning, employees simply have more opportunities to identify and build relationships with quality potential referrals.

8. Having a data-driven referral program also dramatically improves referral quality — as part of the recruiting function’s march toward becoming in a data-driven function, the top corporate referral programs and referral vendors have shifted away from an antiquated intuitive approach and toward a data-driven one. And by using a data-driven approach, it is much easier to identify the best referral sources (i.e., proactively approaching top performers). It is also easier to identify the referral program features that cause a measurable increase in referral quality (i.e., requiring employees to provide a more detailed candidate assessment, motivating employees to make referrals to “help the team,” and providing employees feedback on the quality of the referrals that they made). Shifting to this data-driven approach also leads to the elimination of common “referral program killers” (i.e., like a slow response time for initial referrals and the delayed payment of referral bonuses). So, if you’re not doing it already, measure the quality of hire from referrals and then use data to identify which factors directly contribute to higher performing referral hires.

A Few Additional Reasons Why Your Referral Quality Should Be Increasing

As a result of the booming economy, there are some other factors that have a significant but slightly lower strategic impact on referral quality. They include:

• The growth of social media is expanding employee networks — The continuing growth of the Internet and social media make it easier for employees to expand their networks with little additional effort continually. And with more opportunities to build trust relationships, firms can expect more and higher quality referrals.
• Better program funding also improves quality — Because business is booming, and firms are suffering from a talent/skills shortage, executives have been more willing to better fund and staff referral programs. And if those resources are applied correctly, your quality of referral will go up dramatically.
• Hiring more innovators results in the higher overall quality of hire — It’s almost impossible to hire innovators without an established relationship because they almost always must first be convinced that the entire team supports risk-taking and innovation. And instead of recruiters, the best way to convince applicants that the team supports innovation is through a trust relationship and a referral from a team member.
• The failure of referral vendors focused on collecting employee contact lists — During the vendor referral boom that ended a few years ago, corporations became enamored with referral vendors that focused on harvesting employee contact lists. However, now that most of those efforts have failed, referral program leaders have finally realized that having a contact name by itself is of little value. Instead, we now know that what is needed in order to turn a contact name into a quality referral is for the employee with the relationship to be highly motivated to turn the relationship into a referral. When referral program leaders learn the importance of focusing on motivating the employee, the number of quality referral hires will go up dramatically.

Final Thoughts

Unfortunately, employee referral programs receive little talent leadership time and funding, compared to their incredible impact on hiring. At the best firms, referral programs produce nearly 50 percent of all hires. It’s time to make referral program revitalization a top talent priority at all firms that are struggling to fill positions with quality talent. Achieving a higher priority is even more important because low unemployment and a booming economy make referrals so much more effective in attracting top talent than literally any active job seeker approach.