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The Ups and Downs of Employee Referral Programs - a Lesson from an ERP Champion

By Bryan Johanson, May 13, 2009

For many years companies have touted the power of Employee Referral Programs as a primary source for recruiting top candidates. This year at the ERE Expo in San Diego, one of Microsoft's top recruiting strategists announced that ERP programs didn't work at Microsoft. His conclusion was that Microsoft should focus their sourcing efforts on other sourcing channels. Personally, I was shocked with this revelation. It is entirely counter to what we experience with most of our customers. So, I decided to take a behind-the-scenes look at last year's ERE winner for the best ERP Program and get an update on what's happening today. Perhaps employee referral programs only work in booming economies and tight labor markets, and they completely fall to pieces in economic downturns. I had to know, so I called up Ron Bower, Director of Recruiting and Employee Relations at AmTrust Bank to get the inside scoop on their world class ERP program. They won the ERE award for the Best Employee Referral program in 2008. Stay tuned for some real life surprising "hard knock" lessons from a true ERP Champion.

ERP Background

When AmTrust Bank first implemented the program, the role of the recruiters changed dramatically. All recruiters were expected to promote the program within their individual client groups and they became ERP ambassadors. There was also a mental shift away from traditional paper and online advertising. In fact, recruiters were no longer allowed to place ads in newspapers at all. Ron encouraged them to source in other ways. This was a big deal for the managers who worked with the recruiters because they also had to change their attitudes and rethink their definition of sourcing. In the old world sourcing meant placing an ad. At the time managers were paying for these advertisements and they wanted to know what Ron was going to do with THEIR money when the recruiting team stopped advertising. Over a period of time Ron implemented four bold steps:

1. He completely outlawed the use of print advertising. Nada, no mas, never again!
2. He stopped paying for access to job board resume databases. He considered it to be a low yield activity.
3. Ron canceled all large contracts with the major job boards - also a waste of money.
4. Recruiters were asked to shift their sourcing efforts to getting referrals from their own employees and use their recruiting skills to direct source candidates.

These actions greatly reduced the amount of time used to sort through applicants, search Monster's database, and screen unqualified candidates. It forced the team to focus on higher quality candidates. The results were astounding. Employee referrals soared from 25% in 2005 to 78% in 2008. The program was a huge success and it was fun. Monthly prizes kept the momentum going, and there was a $5,000 annual prize drawing that made the excitement build even higher. There was no stopping this program. Until...

Fast forward one year... What a difference a year makes. Let's be honest - now is not a great time to be a financial institution, especially if one of your main focus areas is real estate. AmTrust Bank did a fair amount of lending in the real estate space, and times have been very tough both this year and last year. (See this recent Wall Street Journal article for details.) Between the economy, the regulators and public perception, it's been a difficult time to recruit. AmTrust Bank experienced their first across-the-board layoff in over 116 years of operations last year.

So how did their recruiting department fare? Surprisingly, they still have need to hire employees, even through times are tough. Even in today's difficult economy, they still hire 77% of all new employees though their own employees. The program itself is still intact, but much of the marketing of the program has changed dramatically. So how do you manage an ERP program in an economic slump? Here's some advice from an expert:

Downsizing your ERP

1. Don't send mixed messages! It's not a good thing to run monthly promotions touting fun prizes, large screen TVs, and mountain bikes at a time when the economy is struggling and your company is laying off employees. Much of the "in-your-face" marketing of the former ERP program has disappeared. It just makes logical sense. You don't blanket the whole world with a hiring message when you are facing layoffs. "We dropped the in-your-face marketing program. We don't currently offer the $5,000 annual prize like we did last year; it's just not appropriate in this market." My guess is those perks will all come roaring back when the economy recovers.

2. Don't get rid of your program! Stay the course! The knee jerk reaction to economic swings is to stop all recruiting and temporarily or permanently abandon successful recruiting programs. In AmTrust Bank's case, it was clear that they would still need to hire even in a down economy. They had already invested a tremendous amount of energy creating the program, and their entire recruiting approach shifted to accommodate the ERP as the main sourcing channel. You just don't walk away from equity like that in a program. To AmTrust Bank's credit they kept the program alive, although with a greatly reduced footprint.

3. Focus on "micro-marketing," not "mass marketing." "We've changed our focus to providing more education on the jobs that are open. We spend our time giving more details and asking employees to be very specific in the referrals they make for jobs that are open." Ron's team created short sell sheets that describe the ideal candidates so employees know what to look for. Recruiters now reach out to specific individuals or groups to network for very targeted roles.

4. Employees are the key to overcoming a bad rap! In talking to Ron, I learned that he firmly believes it's his own employees that have allowed AmTrust Bank to continue to recruit, even in this tough market. If you believe everything you read in the local and national papers, no one in their right mind would want to risk moving to any bank in this environment. Stress tests being what they are and the potential threat of more layoffs are enough to keep even the heartiest candidates out of the financial sector. Ron's firm belief is that his team has been able to continue to recruit good talent because of the personal conviction and assurances of their employees to potential recruits. They are no longer just making referrals - the employees also become the sounding board for candidates who have misgivings or misunderstandings about the "real" situation with the bank. Without that personal touch, it would be much more difficult to fill open positions.

The recruiting group hasn't been immune to the layoffs. Ron's recruiting staff was also significantly reduced, but the department is now stable and getting the job done on a shoestring budget with a lot of help from every employee in the company. That's how recruiting should work! So there you have it - the real scoop. To our friends at Microsoft we say, come rain or shine, come bear or bull, come what may, ERPs are here to stay! And they work.

Happy Recruiting,

Bryan Johanson