Two law firms have made big savings in agency costs by relaunching candidate referral schemes, contributing to significant increases in direct hiring. 

Mardi Smouha, resourcing adviser at law firm Eversheds, told the Hollaroo Social Recruiting Advisory Council conference in London that three years ago “everything was agencies” but that today 38% of hires are direct.

The firm had set a target of 60% for direct hires by 2015, she added. 

Comparing Evershed’s average agency fee of £14,000 and the £971 cost of a direct hire, Smouha said: “There is a real economic driver to do more direct hiring and to use agencies less.” 

Smouha explained how the launch of a new referral scheme, in July 2011, which allowed alumni, future trainees as well as existing members of staff to refer potential employees, had helped to reduce agency costs. 

Under the scheme, she said that fees paid out for successful referrals were £80k-£90k compared with £180k which would have been paid out in agency fees. And around £51k was also saved in staff time.

In her presentation, Sarah Galtrey, recruitment manager at law firm Field Fisher Water, agreed that a good referral scheme was “vital” if you wanted to increase the number of direct hires. 

Galtrey outlined how changes to the firm’s referral programme in March 2012 had seen an increase in its proportion of hires from 1% to 8%. This had helped drive down the firm’s use of recruitment agencies from 89% of hires in October 2011 to 64% today. 

This had resulted in significant savings, she said. For example, instead of paying agencies £20k for finding a partner, the amount paid to members of staff for a successful referral was only £4,500.

She added that the target was to double the proportion of hires through referrals, and to reduce agency hires to less than 50%.

Among the improvements made to the firm’s previous referral scheme are that staff are paid their referral fee after the referred candidate completes their three-month probationary period rather than after a year. 

Not only did it reduce costs, but also the candidate had a better experience, she said, as the referring member of staff was better able to tell them about the firm than an agency recruiter.