Word of mouth can work as a hiring policy

As employers look for ways to attract talented people while cutting recruitment costs, more attention is being paid to internal referral programs, where employees are offered financial incentives to help fill job vacancies by providing information to people they know outside the organisation.

“To an extent, some recruitment has always been done through word-of-mouth methods, but it is usually ad hoc, without much thought about it as a process,” says Susan Mayson, senior lecturer in the department of management at Monash University and an associate with the Australian Centre for Research in Work and Employment.

“Properly designed and operated, internal referral programs can be a very effective means of recruitment. They are more often used by large companies but there is no reason why they cannot be used by smaller firms as well.

“A key advantage is that a person recruited in this way starts with a good base of knowledge about the position and company and the culture, provided by the referring employee.

“That means that they are usually faster at getting up to the required standard of performance. There is evidence from the US that employees who are good performers are likely to recommend potential recruits who are also likely to become good performers.

“But it is important for the entire workforce that the referral program operates on a transparent basis, and that all existing employees have the chance to participate.

“It also has to be made clear to everyone that a referral does not automatically result in an appointment. There are still other steps that have be taken before an offer of employment is made.”

One of the most successful internal referral programs operating in Australia is that of Coca-Cola Amatil, which has established an internal recruitment team to run their program.

“Last year, 28 per cent of external hires were filled through this program,” CCA’s national recruitment manager Jac Peters says.

“Employees who make a successful referral receive a $1000 bonus when the recruit finishes their three-month probation period. That makes it a very cost-effective method, but the real advantage is that it provides good-quality people.”

Ms Peters says CCA provides training and information about the program for existing employees, and that the program is also mentioned when vacancies are advertised through the company’s intranet.

“We have found that the internal referral program is particularly effective relating to jobs in sales, and our contact centre, where most employees have a good understanding of the requirements of these roles,” she says.
“Whether a candidate is successful or not, we make a point of providing feedback both to that person and to the employee who made the referral. When a referral is successful, we ensure that the referee is recognised and that the bonus payment is made on time.

“The system has to run smoothly so employees understand that it is an important part of the business.

“The only group in the company that is excluded from participation in the program is the senior leadership team, which is about 70 people. This group is expected to play an active role in recruitment and talent management as part of their function, so incentive payments are not really appropriate.”

Mr Mayson points out that there can be potential pitfalls in an internal referral program.

“One issue is that it could reduce the diversity of a workforce, as people tend to refer people who are like themselves,” she says. “You need to ensure that this method of recruitment does not degrade the capacity for new ideas in an organisation.

“Another problem is that a person recruited in this way can feel that their connection is to the person who referred them, rather than to the company.

“So there may be a need to put a bit of extra effort into ensuring that a person recruited through an internal referral is brought fully into the corporate culture.

“For a program like this to work, you need a positive attitude from your employees. They are only likely to recommend their company to others if they are proud of it and enjoy their own work. So a referral program is probably a good indicator of the strength or otherwise of your internal brand.

“What you need is a good story to tell.”