Employee Referrals Remain Top Source for Hires

Employee referrals continue to be employers' top source of hires, delivering more than 30 percent of all hires overall in 2016 and 45 percent of internal hires, recently released data show.

Job search engine Indeed again ran away with the external source-of-hire crown (65 percent), producing twice as many hires as all other top branded external sources combined, according to the annual Sources of Hire report released by Chicago-based talent management software company SilkRoad.

The study analyzed data from more than 14 million applications, 655,000 interviews and 329,000 hires, aggregated from more than 1,000 participating companies and collected through SilkRoad's applicant tracking data.

"Employee referrals have proven success," said Amber Hyatt, SHRM-SCP, vice president of product marketing for SilkRoad. "Employee referrals have excellent conversion rates from interview to hire, as well as typically longer tenure with the organization. Recruiting teams are very aware of the benefits of leveraging employee referral programs to cost-effectively recruit, speed the time to hire and secure top talent to fill hard-to-fill positions."

Even though studies consistently show that employee referrals improve quality-of-hire and retention rates while lowering hiring costs, they are still underutilized.

"I find most organizations spend the least amount of money marketing and automating their referral program than any other single source they have," said Tim Sackett, SHRM-SCP, president of HRU Technical Resources, an IT and engineering staffing firm headquartered in Lansing, Mich. "Yet, it's their No. 1 source and their No. 1 quality-of-hire source."

After referrals, internal moves (21 percent) and recruiter-sourced hires (19 percent) make up most of the remainder of internal sources of hire.

Indeed Rules External Source of Hire

Indeed strengthened its position as the top external source-of-hire resource for employers, climbing from 58 percent of external hires and 52 percent of external interviews in 2015 to nearly two-thirds of all external hires and almost three-fourths (72 percent) of all external interviews last year. When internal and external hires were combined, Indeed nearly overtook referrals at just under 30 percent.

But while Indeed does have bragging rights in both hires and interviews, another interpretation of the data signals a misallocation of resources, according to Sackett. "Indeed does drive a ton of traffic and for many companies that's organic traffic, so you can't beat that," he said. But he cautioned that "If you're interviewing a ton from a source because you get great traffic, but you don't make many hires, it's a greater waste of time than those sources where you get a high interview-to-hire ratio."

He sees a similar problem with LinkedIn, which along with CareerBuilder was found to generate the most jobs and interviews after Indeed, though at much lower percentages.

"When I ask most companies to give me their No.1 spend, LinkedIn is almost always their largest single purchase when it comes to the source of hire, even though it's No. 7 overall," Sackett said, referring to the SilkRoad data. "If your single biggest spend is on LinkedIn, yet it's not your single biggest source of hire, you're being taken," he added.

Hiring from Outside vs. from Within

In general, external sources—whether online job boards, recruiting agencies, campus events, job fairs or walk-ins—produce the majority of interviews (62 percent), compared to internal sources such as careers sites, in-house recruiters and employee referrals (38 percent). Yet, it takes four times as many applications from external sources to get to the interview stage and twice as many interviews for a job offer. Internal sources ultimately produced 52 percent of hires in 2016, compared to 48 percent from external sources, according to the report.

"We expected to see a better conversion rate for internal sources as they produce a more well-informed applicant," Hyatt said. "Top internal sources like recruiter-sourced efforts, current employees, employee referrals and even applicants that have researched the organization on the careers site are more well-versed on the organizational culture. These applicants have more proactive insight into whether or not they are a right fit for the organization."

Hyatt added that the need for diversity of thought and additional skill sets outside the current team's makeup will continue to be an advantage for external candidates.

Job Seekers Are Online

The study found that online sources such as careers sites, job search engines, job boards and social media sites produce substantially greater recruitment results than offline sources like recruiting agencies, campus events and job fairs. Online sources produced 86 percent of interviews and 72 percent of hires in 2016.

"These findings only further cement that we live in a digital age and applicants are consumers that want an online experience that is convenient to their schedule, easy to use and provides real-time communication," Hyatt said.

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