4 Best Practices That Make — Or Break — Your Employee Referral Program

Every time I get invited to help software companies grow their business, someone on the senior management team turns to me and shares a story that goes like this:

We have deliberately built a culture where people enjoy working and creating great products. Our team members are challenged and are always treated with compassion. We’ve surveyed our team formally and informally and people truly love working here. Even our competitors know that we’ve successfully created a strong ‘sense of family’ because they have a tough time trying to entice members of our team to their companies. So, it only seemed to make sense for us to tap into the strong feeling of community we created and roll out a referral program that rewards our employees for helping us grow. We launched it with generous incentives along with a very popular easy-to-use SaaS solution for engaging our team members – making it fun and easy to refer. Despite all our efforts, we’re not seeing any real positive results. In fact, almost no-one is participating. We’re very disappointed because we have such an enthusiastic team of talented people who simply aren’t getting involved.

Then, I get asked the following two questions:

• Would we get more employees to participate if we dramatically increased the incentives for referring?
• Should we spend more time promoting the program internally?

If this sounds like you, you’re not alone. That’s because it’s only natural for enthusiastic and passionate software leaders to see their employees as a self-contained “center of influence” that can be leveraged. But, ensuring that an employee referral program is truly effective requires getting some key fundamentals right. So, in this article, I’ll highlight some best practices to help your employee referral programs – for bringing in new sales or new job candidates – be tremendously successful. I’ll do that by digging into the most common mistakes that ambitious software companies like yours make when establishing and rolling out these types of programs.

Employee Referral Program Best Practice #1: Spend time to identify the motivations underlying why employees actually choose to, or choose not to, refer you.

It’s far too easy to think that your employees are solely motivated by money. After all, they are paid for their work performance and who doesn’t want to get paid more, right? However, effective employee referral programs are built on the recognition that ‘payment’ takes different forms – many of which are better at sparking people into action than any amount of money. For example, high-performing employees often place a higher value on receiving additional recognition for the work they do. Furthermore, long-time employees who feel like they’re part of a ‘family’ are often unmoved by additional monetary incentives and feel insulted that their loyalty for going ‘that extra mile’ is being ‘bought’. This reflects a harsh reality that compensation strategies always have to address: As soon as you use an ‘external form of payment’ (e.g. money) to incent a desired behaviour (e.g. referring), you run the real risk of eroding the internal motivation people already feel for behaving that way.

Having said that, if your employee referral program is focused on generating new sales revenue, payment in exchange for actively referring cannot come across as a ‘pittance’ compared to the amount members of the Sales team receive for bringing in new business. That kind of disparity in compensation creates resentment and instantly torpedoes your program’s credibility.

If your employee referral program is focused on bringing in strong new job candidates, existing members of your team may be motivated by finding competent professionals who make their lives easier. Or, they may want to establish a reputation as a subject matter expert. If these are the driving forces behind referring potential job candidates, the tools and tactics you would call upon to reinforce this behaviour isn’t money. Under these circumstances, it would be more effective to find ways to increase their stature – for example, profiling them at important company events.

The key lesson: The reasons that your employees refer new business opportunities (or potential new team members) varies – based on several factors such as their role, seniority level, and career aspirations. And, as this suggests, the motivations for referring evolve over time. Without having a clear understanding of the motivations why employees refer (or not refer), your program will quickly fall flat, alienate the very people you’re looking to engage and potentially erode the positive feeling of camaraderie you’ve worked so hard to nurture in your company.

Employee Referral Program Best Practice #2: Don’t rely on technology to create an effective employee referral program.

One of the very first things companies do when rolling out an employee referral program is to invest in a technology platform for employees to ‘amplify’ core messages – often by way of social media. The thinking goes like this: ‘If we provide a fun, easy-to-use tool for our employees to spread the word about the amazing things that we do, they will, and we will the reap the benefits….oh, and we’ll be able to scale up the program rapidly’.

However, if your employee referral program is meant to bring in new sales, the reality is that your employees often don’t have the kind of relationships with people in their social networks to help them (and therefore you) achieve this goal. In other words, an enabling technology, won’t make up for the fact that they don’t have the ‘opportunity’ to help refer new business to you.

Furthermore, studies from across the globe have found that members of today’s workforce who are most social media savvy (i.e. Generation Y) value keeping ‘work life’ separate from ‘non-work life’. That means, they are much less likely to share information about you, your products, your organization, and your organization’s successes even if you do provide them with the technological means with which to do so.

Employee Referral Program Best Practice #3: Make sure your referral program is aligned with existing processes.

When companies implement employee referral programs designed to help bring in potential new team members, recruitment processes are often disconnected from processes used to engage referring employees. As a result, an employee who takes the time to refer a job candidate may not receives any acknowledgement for their referral efforts for weeks, months or ever. (That places them in a potentially embarrassing situation with those people who they’ve referred.) Furthermore, if your employees must complete convoluted online forms to submit potential candidates they simply stop referring.

If you’re employee referral program is designed to build revenue, make sure you have processes in place for rapidly on-boarding referred customers/clients – which often means highlighting these new customers, and referring employees, as worthy of special attention.

Employee Referral Program Best Practice #4: Apply management discipline to your employee referral program.

If an employee referral program fails, the company culture changes – and not for the better. That’s because, management typically have lofty (and often unverified) expectations for how such a program can work in their organization. And, the reasons for program failure is almost universally placed on the employees for not participating as management had expected. As a result, the relationships between management and employees becomes strained.

The reality is that employee referral programs, when managed properly, are powerful tools that can catapult the growth of your company’s team and revenue. But, whether the goal of your employee referral program is to generate new sales, strengthen your team or increase the name recognition/reputation of your company, you must apply the same kind of discipline as you would for building any new software product. In terms of program management that means gathering program requirements, establishing a strong program charter, rolling out a prototype program to validate its configuration, testing program results, deploying the program and devoting the time and budget to maintain the program.

The key lesson: Make sure that you assess the readiness of your organization to truly establish and sustain an employee referral program. Doing this homework puts you on the path to an employee referral program that will rapidly grow your revenue, bring on amazing new people and extend your name recognition and reputation.

About The Author

Andrew Z. Brown is Founder and Chief Innovation officer of Bridgemaker Referral Programs. He is the lead author of the How to Grow Your Business Through Better Relationships series – which includes books on optimizing growth by leveraging referral sources, channel partners and strategic alliances.