Companies waste millions by not harnessing employee social networks

Businesses throw away millions on recruitment by not encouraging their employees to refer people they know, according to new research issued today.

The study by Capital Consulting shows that only 18% of employees work in organisations which encourage them to recommend friends or acquaintances, despite one in every four (24%) knowing someone they could refer straight away. In todayís highly competitive job market, the vast majority of companies are therefore failing to exploit a rich pool of talent which they could access without incurring recruitment costs such as agency fees. Capital Consulting estimates that a company hiring 250 people per year would save 80,000 if only 10% of these came through referrals and a 250 reward was paid for each.* If every company listed at the London Stock Exchange did this, the total saving would be more than 260million.**

Referral schemes encourage employees to recommend someone they know to an employer by offering a financial or other type of reward for referrals that result in successful recruitment. One company with a thriving referral programme is Coors, the UKís second largest brewer with leading brands that include Carling and Grolsch. In 2006, 24% of new employees were introduced to the company by staff referrals.

Dawn Butler, Resourcing Manager at Coors, comments on the success of the programme: ìOur existing employees live our values and understand our business better than anyone else, so they're best placed to recommend suitable individuals to the company. We've been very pleased with the success of our scheme and the calibre of candidates referred to us. Better still is the fact that our people are happy to recommend Coors as a great place to work.î

In spite of a lack of formal schemes or financial incentives ñ only 14% received a monetary reward for referring someone they know - the research also shows that some employees are making referrals. Almost half of those surveyed (46%) have referred someone, 42% have been referred by someone else and two-thirds are happy to refer someone in the future. Without schemes in place to take full advantage of this activity, however, this is largely on an unguided, ad hoc basis.

Marisa Kacary, Marketing Director at Capital Consulting, says: ìEmployers are missing a trick by not adding referral schemes to their recruitment arsenal and thereby harnessing the power of employeesí professional and private networks. Companies that actively promote referrals are making the most of their employeesí potential as de facto recruitment agents, attracting higher quality employees, and avoiding costly agency fees.î

According to Capital Consulting, as candidates who come through referral have already been vetted by an employee, they are usually a better fit with the company and the job and have a better understanding of the business. As they have a ready-made network of workmates, they also settle in quickly and tend to stay longer than employees who come to the business through external agencies. They are also more likely to perform well so as to not reflect badly on the one who recommended them.

ìWhether itís due to short-sightedness or a lack of expertise, most companies seem reluctant to endure the short term pain of setting up a scheme and are paying the price in the form of high recruitment costs and staff turnover,î says Ms Kacary. ìYet referral schemes are simple to set up and operate, cost-effective and easy to promote through internal communications. With competition for talent fiercer than ever, itís time for employers to explore this hugely under-utilised method of finding the right man or woman for the job.î

*Recruitment agencies can charge 15-20% of starting salary per hire. The figure used for this example is 15%. The median weekly pay in the UK as of April 2006 was 447 or just over 23,000 per annum, according to the latest Annual Survey of Hours and Earnings (ASHE), National Statistics, October 2006

**Total number of companies, London Stock Exchange, April 2007 = 3,251