The Importance and Risks of Employee Referrals

When talent pools shrink, sourcing candidates to fill positions can be hard. Facing a competitive job market, many companies are turning to internal referrals to find talent.

Referrals offer a range of advantages for companies. Referrals reduce the cost of hiring, referred employees tend to be happier, and retention increases for both the reference and the new hire. You do run the risk of bias when you rely too heavily on referrals.

Here are some factors to consider when hiring through referrals.

Reducing Hiring Costs

The first and most popular reason companies start referral programs is the cost savings. Leaning on employees to tap their networks for talent can save companies a lot of money. When looking for passive candidates, a word from a friend can go a long way to motivate potential talent.

The difficulty comes when employees oversell the position, company, or the person they’re referring. Whether they are trying to get a friend or acquaintance a job, someone they can talk to at work, or even for any sort of incentive a company offers, employees can introduce some difficulties into the hiring process.

Working with a staffing or recruiting agency may cost more than a referral program in some instances, but the money saved avoiding poor placements and re-hiring can make the difference.

Increased Job Satisfaction and Retention

When a candidate is placed due to an internal referral, they tend to have higher overall job satisfaction. When you think about it, that makes sense. They probably reached out to their network when they decided to leave their current position. If they didn’t like that company, your company’s position was a breath of fresh air for them.

That satisfaction comes with better retention as well, with almost half of all referred hires staying for at least a year. Another factor that can help retention is that they already know another person at the company. As we all know, sharing the workplace with people you enjoy goes a long way.

This effect isn’t limited to the new employee either. Retention rates for current employees also increase after successful referrals. These employees have invested their time and their network into the company. When their opinions are valued in the hiring process, they are more likely to be more loyal to the organization and stay longer.

Referral Pitfalls to Avoid

Referral programs aren’t the perfect solution though. While internal culture can grow from employee referrals, negative aspects of a culture can increase as well. Hiring managers need to be careful with referrals and make sure the new hire and the current employee are what’s best for the culture and the future of the organization.

A cycle can be created with referrals that can amplify certain aspects of a company. Unconscious bias is the most common side-effect of referrals. The people in our networks tend to have things in common with us. We gravitate toward similar people. If employee networks are the only source of candidates for your company, you run the risk of reducing diversity, amplifying negative culture, or creating favoritism in your organization.

Most of all, referrals can be useful but as with any tool, you need to be mindful. At Reliable Resources, we are experts in finding the right fit for all your staffing needs. Contact us today.

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