Finding qualified candidates is a challenge for employers, even more so during difficult economic times and labor shortages. Employee referral programs are a valuable recruiting strategy for developing a workforce for several important reasons. Employee referrals generate a high return on investment while reducing time to hire and cost per hire.

HR experts like Dr. John Sullivan report that employers say that employee referrals are the number one source of quality applicants. Online job search and review platform Glassdoor reports that referred candidates are more likely to accept job offers. An effective employee referral program is an important part of a successful recruiting strategy.

How to make sure your employee referral program is effective? LinkedIn reports that the average employee referral bonus in 2019 was $2,500. But is a cash reward the best referral incentive for your company? There are various factors that affect how well your employee referral program works, and knowing how to design incentives is one of the most important.

Make sure your employee referral program is effective with the right incentives.

When to Incentivize

Many employers pay employee referral bonuses after the referral is hired and has worked for a certain amount of time. But when to offer employee referral bonuses most effectively depends on a variety of factors. Your organization’s resources, what motivates your employees, and your organization’s recruiting pain points.

If your company needs to develop a team of highly skilled professionals, you may want to pay an incentive for names and then for hires from referrals. Some employers supplement referral bonuses based on performance, long retention, or hires from competitors. If your company is trying to increase participation in its referral program, you may want to offer small incentives for finding out about the program and sharing it with personal networks.

Dr. John Sullivan discusses when to pay referral incentives. He suggests a variety of timing for paying referral bonuses, including paying employees even for referrals who are not hired. Paying first-time referrers and paying a bonus supplement for hard-to-fill or urgent hiring needs are other options he recommends.

Sullivan says the most common timings of referral bonus payments are on the new hire’s start date or split into two payments. But he recommends against splitting up referral bonuses or delaying incentives in any way. He considers this a “program killer.” He says that it’s better to offer supplemental bonuses on referrals tied to retention or new hire performance than split or delay bonuses.

Who to Incentivize

Another question that comes up in designing incentives for employee referral programs is who to offer referral bonuses. Some employers may exclude certain types of employees from their referral bonus programs to try to eliminate problems or conflicts. But Sullivan doesn’t advise excluding any employees, even senior managers or HR staff. He says this alienates them and de-motivates them from referring quality candidates. He recommends including an “opt-out” of the bonus for any conflicts of interest.

What Incentives to Give

There are many different incentives you can give for employee referral bonuses, but three main types are financial, social, and altruistic. A financial bonus is in the form of a cash prize for referrals, either for contact information or for being interviewed or hired.

A social employee referral bonus is in the form of social recognition and praise. This type of bonus can take many forms, from promotion on a company’s website for top referrers, or praise in company meetings. An altruistic referral bonus includes socially responsible gifts such as donations to a referrer’s favorite charity.

To know what employee referral incentives will work best for your company, survey your employees. Provide a list of bonuses that your company could provide and ask employees which they like the most. Is it strictly cash, or are they more excited about the newest tech gadgets or awesome travel incentives? Or are your employees more invested in helping others? When you know what employees want most, you can design the most effective referral program.

Mobile advertising network InMobi found that experience-based bonuses were more effective than cash bonuses in their employee referral program. They stopped cash incentives and offered gifts and trips instead, marketed their new incentives, and boosted their referrals from 20 percent to 50 percent.

Don’t Let Program Killers Sabotage Your Referral Bonus Program

Designing your employee referral program incentives should be well-planned to be the most effective. Knowing your employees and your company’s recruiting needs is the place to start. Good communications and consistent marketing keep the momentum needed for a successful referral program.

Avoid employee referral bonus program killers like slow response rates, delayed payments, and allowing large amounts of casual referrals. Dr. John Sullivan recommends refreshing referral program marketing and communications at least once a year to prevent losing effectiveness. He also recommends including feedback for weak or bad referrals so employees can truly understand the kinds of referrals that make successful hires.

When your employee referral program is implemented with the right incentives, it creates interest and excitement and motivates participation. The opposite happens with a program that is not designed right or marketed sustainably.

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