Fiona Smith Columnist

Fiona writes on workplace issues, including management, psychology, workplace design, human resources and recruitment. She is a former Work Space editor at The Australian Financial Review and has also covered property, technology, architecture and general news.

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Referral bonuses: Why ‘hire a friend’ wins every time

Published 02 April 2013 10:41, Updated 16 May 2013 00:46

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Referral bonuses: Why ‘hire a friend’ wins every time

New hires referred by existing employees can usually start faster and are cheaper to bring on board. Photo: iStock.com

For all the money businesses spend on recruitment, “hire a friend” is actually the best source of new employees.

The percentage of applicants who have been referred by existing employees is minor – only 7 per cent, according to US recruitment technology form Jobvite. However, that small number actually makes up 40 per cent of all hires. That’s a hell of a conversion rate.

It means employers are convinced that it is better to hire “known quantities” than it is to take a chance on people who come through other channels, such as direct approach, responding to advertisements or recruitment companies.

Of course, the adage, “It’s not what you know, it’s who you know” means that we have always been aware of the power of personal networks, but the extent of their effectiveness is still stunning.

Analysing that Jobvite data, community manager for Link Humans in London, Laurence Hebberd, says the average employee will have 150 contacts on social media networks.

“One hundred employees means around 15,000 contacts [and possible candidates],” he writes on the Undercover Recruiter blog.

So the potential reach of the network is extensive, but those “hire a friend” applicants are also able to start work earlier – after 29 days, compared with 39 days through job boards and 55 days through career sites.

About half of the employers surveyed by Jobvite say that it is cheaper to hire through referrals, and salespeople are the most common roles hired through word of mouth.

In terms of job satisfaction and retention, people hired through referral also win, with 46 per cent staying more than one year, 45 per cent more than two years and 47 per cent more than three years.

This could partly be explained by the fact that, because they already knew someone working at the company, they knew what they were getting into when they applied for the job.

The effectiveness of referrals has encouraged many employers to spend up big on referral bonuses.

Of the 50 top companies from last year’s BRW Best Places to Work awards, 40 offered a referral bonus: 15 companies offered $1000 or less, 13 offered $1000 to $2500, eight offered $2500 to $5000, and four companies offered a windfall bonus of more than $5000.

In comparison, recruitment agencies are paid a percentage of a recruit’s first year’s salary, which could work out to $20,000-$30,000 for a $100,000 position.

Source: theundercoverrecruiter.com

See the full infographic at theundercoverrecruiter.com

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