Employee referral programs have been around forever – arguably since ancient Rome, when Julius Caesar offered money to any soldier who recruited another soldier into the Roman army. Over the last decade, employee referrals have been the go-to source for recruiters searching for the “best” candidates. Data shows that candidates who have been recommended by existing employees have high applicant-to-hire conversion rates. And once they come on board, referral candidates tend to stay longer: 46% stay over 1 year, 45% over 2 years and 47% over 3 years.
However, as sourcing tools and recruitment management platforms get more sophisticated, do employee referrals still carry the same weight? Julius Caesar was definitely on to something. But, are employee referrals going the way of the toga now that new tools are changing the way recruiters work?
Why create an employee referral program
Hiring managers love candidates that have been referred by existing employees for a few reasons. First, it’s cheaper and faster to hire a referral than a traditional candidate. Retention rates tend to be higher, and referrals are overall more satisfied at work than a traditional candidate. Referral candidates tend to be “passive” job seekers, meaning they are a largely untapped pool of talent and bring more to the table than traditional job seekers. According to recruiter surveys, these passive job seekers have more experience, possess valuable skills, and take their careers more seriously than the traditional job seeker.
Some companies use formal referral programs to offer their employees incentives or bonuses for bringing in new talent. A formal referral program can help you check the pulse on your office culture and employment marketing efforts. If your employees are enthusiastic about recommending your company to others, and make frequent recommendations to fill your open positions, you know the organization is doing something right.
Common problems with employee referral programs
Employee referrals are pretty great, overall. But there are a few drawbacks recruiters must keep in mind when using referrals to fill their talent pool.
First, if you’re hoping to diversify your company, employee referrals may work against you. Existing employees tend to recommend others from their professional network. If your staff is made up primarily of a certain demographic, there’s a good chance most of their professional network belong to the same demographic. Referrals may perpetuate the “old boys club” mentality of the past. Be mindful of the fact that men of color are 26% less likely to have received a referral; and women of color are 35% less likely.
Likewise, referral hiring can also stifle innovation. Managers may submit a candidate with whom they’ve worked in the past, knowing this person will endorse their ideas instead of bringing a fresh perspective. Or, a referral hire may be shy about critiquing an idea for fear of damaging a relationship with the employee who recommended them for the position. This can cause your company to miss out on potential opportunities for development and growth.
Finally, and perhaps most importantly, referrals can cause some hiring managers to hire with blinders on. Referrals have been a reliably good source of talent, and so it becomes easy for a recruitment team to rely exclusively on the recommendations of their peers. Recruiters run the risk of defaulting to a referral candidate without doing their due diligence on the entire applicant pool.
Tips for your employee referral program
Clearly, the statistics don’t lie: referrals remain the gold standard source for finding great talent. However, skills tests and AI recruitment tools now allow recruiters to efficiently vet referral candidates along with the rest of the talent pool.
Dynamic skills testing can help a recruitment team hire for merit, rather than what’s on a candidate’s resume. During your evaluation process, ask the candidate to perform on-the-job tasks: edit documents, spreadsheets or presentations using Google’s suite of apps, or use a code editor to test software development skills. Use a machine-learning algorithm to rank lots of candidates based on how they perform, removing the referral bias from the entire process. This allows recruiters to focus on the best candidates regardless of their background and networking skills. Capture the same time-savings benefits while removing some of the drawbacks to employee referrals, all in one, easy-to-use platform.
