Survey: Employee Referrals Prove Cost Effective

Compiled ByDave Schafer Employee-referral programs (ERPs) are the most effective recruiting method for finding qualified candidates while watching the company's bottom line, a vast majority of the respondents said in a new survey released by the Alexandria, Va.-based Society of Human Resource Management (SHRM) and Referral Networks Inc., New York. ERPs are more cost-effective than job-search firms, 80% of respondents said, and nearly 70% said ERPs are more cost-effective than other recruiting practices. The findings are from the 2001 Employee Referral Program Survey, which measures the opinions of 586 human-resource professionals regarding the structure and effectiveness of employee-referral practices. "In today's tight labor market, organizations need workers fast. And what better way to tap into talent than to encourage current employees to identify and refer potential hires to your organization?" says SHRM President and CEO Helen Drinan. Sixty-five percent of respondents said their organizations have either a formal or informal employee referral program, and 36% said ERPs were effective for increasing retention of current employees. The most frequently mentioned incentive offered in an ERP was financial rewards (77%). Cars were second (23%) and gift certificates were a distant third (8%). Richard Adams, CEO, Referral Networks, says companies are realizing the value of ERPs as a recruiting tool generating talent and increasing their bottom line, which is particularly important in a slowing economy. "But to ensure the greatest return on investment, companies must also proactively promote these programs," he says. Only 44% of the respondents felt their organizations place enough emphasis on investment in their ERP. Some of the impediments to success of these programs are lack of awareness and stimulating employee participation.