With an acute shortage of skilled employees being predicted in the coming years on account of the retirement of the baby boomers, to fight against the shortage the organisations came up with the method of employee referrals for new recruitments. With the report of McKinsey & Co. making a prediction of the exit of 70 million baby boomers in the next 15 years compared to the 40 million entries, identifying ways for improving the quantity and quality of talent plays a great role today.

The first step in starting the employee referral program is to budget the amount to be set aside for the payment of bonus to the referrer. Once the amount has been set aside, the company has to draft an application form that is to be used for making the submission of referrals less time consuming. A well designed application submission form can also aid in maintaining a good potential candidate database within the entity. Once done, the management has to take measures to popularise the system within the employees. The bonus that is to be paid for the employee referral must be large enough to encourage referrals but smaller than the average cost to the company in seeking the applications otherwise. The company can make a huge amount of savings through referrals which otherwise would have been spent on remunerating a placement agency. In the current period of economy slowdown adding to the savings of the company through any means can contribute to the company profitability.

The system should communicate the terms of the payment of referral bonus to the employees. The method of remunerating the employees for successful referrals has seen a change over the years. For instance, Apple Computer in the '80s, is said to have given gift certificates which were sometimes utilised for getting a free Apple t-shirt which made the young satisfied as it helped in creating a feeling of oneness with the entity. The payment is generally made after the completion of a fixed tenure like three months’ of service by the referred provided the mediator continues his service with the company during the time of the bonus payout. Some companies opt for a system of payment wherein the bonus is compounded on every effective referral paid. Some others provide the referrer with an additional bonus if the referred puts forth excellent performance.

The management is to encourage the employees to conduct an initial screening of the candidate before referring them. This aids the company in putting lesser amount of time and cost on each candidate. Similarly the employees must be encouraged to add employee referrals to the company’s data base even when there is no immediate requirement for the role. With the hiring managers’ given access to this database, they can keep themselves informed of the candidate mix that is available to them which can be used later on. This system can encourage the management to maintain a relationship with the potential candidates.

The management can encourage the system by giving preference to candidates coming through the employee referrals. They should be given more weightage and must be processed within a short period like 48 hours or so. The hiring manager must take steps to keep the referred and the referrer informed of the status of the application. Once the candidate has been added to the company payroll, the management must keep vigil over his movements and take measures to thank the referrer for his work.

Employee referral programs must be encouraged within the organisation as it is cost effective and a time saver. The entire system must be made web based and paperless for quick processing. This system must be open for intra-placement which can motivate the employees to stay within the company by exploring various opportunities. The manager has to analyse the ROI of the system from time-to-time and the employee participation in making it a success. Studies reveal that the retention rate is high in employee referral programs. Employees must be however encouraged to make excellent referrals as they are the best brand ambassadors any company could have.

Thus employee referral programs can succeed in producing outstanding results with regard to time, cost, effort and quality of hire.