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Referral hiring can bring down hiring costs for India Inc

If your corporation is not getting close to 30 per cent of its hires from employee referrals, it may be time to restructure the recruiting function

Ankita Rai  |  New Delhi 

If you are currently looking to restructure your recruiting function to keep costs under check, you may want to focus your time and money on processes that yield results the quickest, entail the lowest cost and have the lowest risk of failure. All the recent data on the subject indicates that one option stands and shoulders above the rest. And that is putting in place or upgrading your employee referral programmes to take advantage of the spread of social networks. If your human resources team has still not looked at employee referrals seriously you might be squandering a huge chunk of your work-force budget.

Consider these figures: 50 to 60 per cent of most companies' operating expenses are work-force related costs. And about 50 per cent of that goes into hiring, training and equipping new recruits. Now if you consider referrals as a sourcing option, it will offer the best application-to-hire time - 29 days for referrals compared with 39 days for job boards and 45 days for career sites - and the best retention rate. Referrals are at No 1 with 46 per cent in retention after the first year compared to 33 per cent from career sites and 22 per cent from job boards (source: Jobvite index 2012). And it is not difficult to imagine that roping in head-hunters or trolling through job sites could hurt your wallet harder than offering quick incentives to the employee who refers a potential recruit. Just imagine the kind of branding value you would derive when hundreds of your own employees talk about the company and its products to their friends, family and their extended social networks! (LOW-COST HIGH-IMPACT RECRUITING IDEAS)

The search and recruitment market in India is already huge - according to an EY Human Resources Solution Industry study, it is estimated between Rs 2,800-Rs 3,100 crore and is expected to touch Rs 6,200 crore in the next three years. The two dominant ways corporations use to identify people are in-house HR departments and by roping in the services of head-hunting firms when the hiring concerns the top echelons. While whom you know has always counted in hiring, The Strategist research shows a huge chunk of India Inc has already warmed up to the potential of referrals. Experts say they account for 35 per cent of candidates recruited in India already and may be poised to touch the magic 50 per cent mark in the next two years.

If the benefits are so many, why hasn't referral hiring grown even bigger in prominence, you may ask. The flaw lies in the design of some of the referral programmes. It is like this: Imagine you are at a restaurant with a group of colleagues, just finishing your meal. As you pay for your meal, the manager says, "I hope you liked our service and will encourage your friends and family to come check us out. If they do, we will give you a coupon for a free appetiser." This is mostly how many companies execute their employee referral programmes. They encourage employees to recruit friends and family members to work for the organisation offering a token referral bonus. It should come as no surprise that this approach to employee referrals produces few-to-no results.

The second is experience. You first need to make sure you are giving your employees something to brag about. Says Denis Cauvier, author, and expert on 'finding, engaging and retaining exceptional staff', "The following slogan applies to both the world of customer service and to an organisation that employees will be proud to share with others: 'People will go where they are invited, will stay when they are appreciated, and will tell others when encouraged to do so.' To turn your workforce into a team of recruiters, you need to take an honest look at the work experience you deliver."

By asking questions about the work experience you deliver to your employees, you will be able to design the kind of experience that employees would want to tell others about. Not only does creating such a satisfying, motivating and inspiring work experience turn your workforce into a band of head-hunters, it also improves overall morale, productivity, engagement and customer service quality.

So don't treat a referral programme as a nice-to-do-if-we-had-the-time project; do this to ensure your company's financial viability. Also, make sure to always reward when the candidate is referred, not hired, which often happens weeks or months after the employee originally referred a great candidate.

How companies are doing it
Research shows there is a positive correlation between highly engaged employees and the number of referrals they provide. And that the programme works best in niche and hot skill areas because this is a very close-knit community. Such employees network very well and move in packs. "The influencing ability of such individuals is also very strong," says Naveen Narayanan, global head, talent acquisition, HCL Technologies.

Manoj Biswas
So, how can you do it well? It is important to design a referral programme that is fair and visible to all the employees. Also, the programme must be reviewed from time to time and changes must be made as and when necessary. "At Accenture we offer various incentives to employees. The referral amount may not be monetary benefit, instead, it could even be a promotion or other incentivised perks. It differs from each business unit to another and also depends on the candidature," says Manoj Biswas, lead, human resources, Accenture India, which fills a substantial chunk of its positions through referrals any given year.

"To encourage more women workforce, we offer bigger benefits to the employee for referring women candidates. Referral programme is critical for niche skills and executive positions," Biswas adds.

Richard Lobo
At Infosys employee referrals is one of the key channels for lateral hiring. "We encourage use of technology for the employee referral process. There is a portal where employees can view requirements and directly submit the profiles of candidates. They can track the status of their referral in real time. We have monetary rewards defined for different job levels," says Richard Lobo, AVP & head, employee relations, Infosys.

Why is employee referral such a big deal at one of the most respected IT firms in India? Simply because it operates in an industry known for high employee turnover. "The biggest advantage of the employee referral system is that the employee acts as a brand ambassador for Infosys right from the day the candidate expresses her interest in joining the organisation. It leads to reduction in cycle time spent by the recruitment team in addressing the softer aspect of queries from the candidates as the referring employee will be addressing the same," he adds.

However, Lobo warns that there is a danger that employee referral programmes will end up stripping an organisation of its diversity and lead to nepotism. The selection decision in case of a referral should be by an independent panel and the company should have processes to ensure that only a candidate who meets the norms is selected. "An employee referral programme is just a sourcing strategy and should be backed up by a strict evaluation and hiring process," he adds."

To ensure that the recruitment process is transparent, HCL Technologies ensures that the referred candidate is not hired in the same department or project as that of the referrer.

HCL's Narayanan says, "A strong policy to process referrals is a must to ensure the right candidate is sourced at the right time. The person referring should not be part of the selection processes and there should be checks and balances in place to ensure credibility of the process."

HCL also has an internal networking platform, which works just like any other social networking platform and 85 per cent of the workforce actively uses it. This ensures employees are constantly connected to like-minded and like-skilled people, which makes the job of making recommendations so much easier.

At auto major Maruti Suzuki India, the recruitment process is divided into two categories: campus recruitment and lateral recruitment. For lateral recruitments the job of sourcing is done with the help of internal job postings and employee referrals, besides using the reach of the corporate website and job portals, and the good offices of placement consultants. "The first preference for lateral recruitment is given to employee referrals and internal job postings, which together comprise 40 per cent of the lateral recruitments, says SY Siddiqui, chief operating officer (administration), Maruti Suzuki India.

"This also helps in better connect with company's ethos, a stronger employee bonding and better retention, " adds Siddiqui.

Likewise at Ernst Young, employee referral contributes to 55 per cent of the total hiring which a benchmark in this space. Says Sandeep Kohli, national director, HR, Ernst Young, "Referral hiring lowers the cost of overall hiring by approx 50-75 per cent across levels."

Cutting hiring cost in the organised retail sector is a different ball-game altogether. Here the majority of the hiring happens at the store level because attrition levels are the highest there. GR Venkatesh, head, people office, Future Group, explains how it works in his sector: "Eighty per cent of our workforce is at the front-end and most of the recruitment happens through referrals or walk-ins. This particular category of staff is required to clear their school leaving examination. On the other hand, 60 per cent of the vacancies at the back office - zonal offices and the headquarters - get filled through employee referrals." "We also use recruitment consultants, but most of the time we know people from the industry. Networking always helps in this sector," he adds. However, the company prefers consultants for specialised positions, for which the company may be hiring for the first time. A consultant can charge from 5 per cent to 25 per cent of the potential recruit's salary, depending upon the position. That's a huge cost - something that can be cut down dramatically if it were to use referrals.

The facilitators
Looking at the potential, several start-ups and job sites are now offering unique platforms to facilitate the referral process., for instance, has an interesting referral platform. "If you look at the top 100 companies in India, they all have their own referral platforms," says V Suresh, executive vice-president. "However, SMEs and non- IT companies don't know how to execute an internal referral," he adds. This is the segment Naukri is tapping with its Hot Vacancies platform that will cost a company between Rs 75,000 and Rs 1 lakh annually. The platform enables recruiters to design their own internal referral campaign and upload the email addresses of their employees. Employees can then broadcast this to their social media groups and alumni networks. Once a candidate applies back, the platform is able to tag it to the person who referred it. Among its other offerings, the portal has a shortlisting tool and the Naukri recruiter, which is free. By using the shortlisting tool, a recruiter can shortlist five resumes from at many as 2,000 responses in five minutes flat. "The Naukri recruiter scan saves a company 40-50 per cent of its recruiting cost," Suresh claims.

Some start-ups are also doing interesting work here. Round One, founded in 2011, has a unique model that incentivises employees in companies to interact with job seekers. If found suitable, employees can refer suitable candidates for jobs. Ashish Aggarwal, vice-president, Round One, says, "At times, employees are unable to find the right candidate to refer from their own social circle. By providing an alternate network of suitable and qualified candidates, Round One helps employees refer the right candidates and help their organisations increase efficiency."

Round One charges a membership fee from job seekers, but the sum is small-Rs 50-for lifetime access to request referrals from any employee at any company. When a potential job-seeker is accepted by a potential referrer for an interaction for a particular job, it charges a fee of Rs 500, Rs 700 or, Rs 800 depending on the seniority of the candidate. This ensures that only job seekers interested in that job speak with the referrer. Round One has 7 lakh registered users.

Then there is Whistletalk, a Bangalore-based startup, which has a social hiring application that enables employees and hiring managers to find the best talent at the earliest. It sells a monthly subscription-based service to corporates and the charges are calculated on the basis of the number of employees the company has and the job openings at the company. "If a company recruits a person of an annual salary of Rs 10 lakh through a recruitment agency, it pays the agency Rs 75,000 to Rs 1 lakh. If the same person is hired through via referral, the company pays Rs 25,000 as bonus. You can see the kind of savings right away."

A huge social network like LinkedIn can also be explored as a sourcing base. "LinkedIn can be leveraged for attracting passive candidates. It is a tool where jobs find candidates. It is also an important platform for employer branding and given the large data base, it is kind of a referral platform where companies can use employees' social networks," says Irfan Abdullah, director talent solutions, LinkedIn India.

That said, while employee-referral programmes can be advantageous for both the employer and the referring employee, unless a company has a strong HR foundation, it becomes difficult to manage employee referrals. Also, there is no substitute for good old-fashioned planning to stay proactive and keep hiring costs under control. "The best way to do this is to start treating HR as a profit centre," sums up recruitment expert Cauvier.

Sanchit Vir Gogia
EXPERT TAKE: Sanchit Vir Gogia

Employee referral programmes fail for a variety of reasons. But most of them fail because they are not engaging and are unable to get employee attention. Here are 10 things to keep in mind while designing a referral programme:
  • To find the right motivation tools for your employee referral programme, start by considering why your employees stick with you in the first place
  • The reward for a referral has to be reasonably attractive. Add interesting variable rewards, not just cash
  • Understand the hierarchy; people at lower rungs of prefer money, mid-needs recognition and top wants it to reflect in their KRAs
  • Don't ignore employees whose referrals don't end up hired. Issuing the reward to the one whose referral works out may alienate others and discourage them from submitting referrals again
  • It is important to create interest in the job description. The process used to advertise new post should reflect the company's culture
  • Incorporate social media platforms such as YouTube and Facebook to highlight the best practices at the company and any best-place-to-work-type awards that the firm has won
  • Make the process of referring a potential candidate simple; most people get put off if the process is cumbersome
  • A referral programme should have an active feedback process in place. If the hiring process takes time, employees who make recommendations need to be kept in the loop
  • Right now most of the referral programmes are forced upon employees. They are not even asked what kind of referral policy they want. This doesn't work
  • Companies need to revise the referral programme from time to time to keep up with changing industry trends

Sanchit Vir Gogia
Founder & group CEO, Greyhound Knowledge Group

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First Published: Mon, July 22 2013. 00:20 IST