HR Pros Say ERPs Most Cost-Effective Recruiting Method

June 25, 2001 ( - Employee referral programs (ERPs) are one of the most cost-effective recruiting methods available to find qualified candidates.

That was the conclusion of a new survey released Monday by the Society for Human Resource Management and Referral Networks. Referral Networks, Inc. manages and hosts online employee referral programs for Fortune 500 companies.

The 2001 Employee Referral Program Survey measured the opinions of 586 HR professionals regarding the structure and effectiveness of employee referral practices. At least 65 percent of respondents said their organizations have either a formal or informal employee referral program:

  • 80 percent of survey respondents said that ERPs are more cost-effective than job search firms
  • almost 70 percent said that ERPs are more cost-effective than other recruiting practices.

More specifically, the survey revealed that each exempt hire made through an ERP costs an organization about $900 in incentives and rewards, and each non-exempt hire costs about $400.

Regarding program effectiveness:

  • 37 percent of respondents indicated employee referral programs were more effective or extremely effective for recruiting outside candidates
  • 36 percent said that employee referral programs were effective or extremely effective in increasing retention of current employees.
  • more than one-third (34 percent) indicated the programs increased the number of interested candidates.

“In today’s tight labor market, organizations need workers fast,” said SHRM President and CEO Helen Drinan. “And what better way to tap into talent than to encourage current employees to identify and refer potential hires to your organization?”

Among the incentives offered in an employee referral program:

  • financial rewards were the most frequently (77 percent for exempt positions and 78 percent for nonexempt positions)
  • cars were second (23 percent and 22 percent
  • gift certificates came in a distant third (8 percent).

In most cases, the amount of the award was predetermined and distributed after a required tenure period of the new hire – usually three months.

When asked if their organizations placed enough emphasis on and/or investment in their employee referral programs, 44 percent of respondents agreed or strongly agreed that enough emphasis was placed on employee referral programs for exempt positions.

Respondents also cited challenges such as lack of program awareness (36 percent) and stimulating employee participation (33 percent) as impacting the success of their organizations’ employee referral programs.