At this time when the labor markets are facing severe shortage of skilled manpower and when companies experiment with wide range of recruitment models (job portals, newspaper ads, direct hiring, recruitment agencies) to fill their vacant positions with quality talent and combat attrition, ‘Employee Referrals’ is the new buzz that is catching up too fast. The concept is not novel though, however, of late it has increasingly become the favorite option for every other organization for hiring best talent. In most companies 30 to 40 per cent (or even more) of the new hires come through the channels of internal referrals, i.e., those candidates recommended by the company’s own employees. The HR managers assert that employee referrals give them the best results and are highly cost effective.
Why Referrals?
There are a number of reasons why employee referrals are becoming preferred model of hiring. Firstly, companies believe that their employee are more clear of what skills are required for a particular profile. Therefore, chances that the referral candidate belongs to the best-fit-lot are high and thus his chances of getting selected are also high.
Secondly, employee referrals help in cutting costs which are associated with hiring. Companies work on reducing the average cost per hire. Recruiting candidates through the referral system results in huge savings as large amounts on advertisements and placement agencies costs are saved. Companies reveal that the cost of hiring a referral candidate works out to be 60 percent to 70 percent cheaper than that of going through an external agency and recruitment advertisement. Recruiting through referral programs help in finding the right person with right skills and that too at a nominal cost. It is the most cheapest but effective mode of recruitment. It also help foster a stronger commitment with employees.
The referrers also supply quality candidates who are expected to perform better. This is because they want to make an impact on the organization by showing their commitment to the organization. Moreover, the candidates referred are well versed with information about the company’s culture and goals as provided by their friends. They are informed, well in advance, about the company’s work environment and expectations.
Also, the candidates hired through referrals are expected to stay for long with the company than those hired through recruitment agencies. Thus, infant mortality (that is the percentage of people who leave within one year) is low when employees come through internal referrals.
The referrals lead to shorter recruitment cycles as compared to those hired otherwise. Moreover, employee turnover is also lesser in case of referrals. This is because most referred candidates prefer to work in an organization where he is known to someone, where he has a buddy by his side to help him out or guide him through. It also helps them to settle down easily in case they are from different cities.
Employee Advantage
The referral programs are made tempting by the employers so that employees are motivated enough to refer their known ones to their organization. The companies, now-a-days, are giving up huge rewards to the employees who bring in candidates, specially for hard-to-fill positions, and award them when the candidate is inducted. The rewards range from cash bonuses to gift coupons and even luxury items. For instance, Adobe Kenya runs a referral scheme where all employees who have successfully referred a candidate are eligible for a lucky draw where they can win a luxury car.
Companies are encouraging their employees to refer candidates whom they know. It also helps in team-building, as it gives employees a reason to feel that they are contributing to the growth of the company.
What goes wrong
Hiring potential recruits through referrals seems to be most advantageous than other options, however, there are always flips sides to it. Hiring through referrals might encourage nepotism and other concerns.
Enticed by lucrative bonuses, employees may recommend candidates left, right and centre. It is also believed that this process has diminishing returns to scale for rather than referring quality candidates, employees refer tom, dick and harries. Tempted by the referring incentives, employee recommend candidates who even are unknown to them. Statistics also reveal that most of the employees refer candidates only to help the person instead of helping the company or to fetch themselves the incentives and cash bonuses.
One of the concerns that needs to be given a serious thought is where referrers are yet to realize that they are accountable for the quality of recommendations they make. A bad recommendation from them affects their goodwill and commitment towards the organization.
Some argue that referrals give encouragement to Groupism. Organizations should ensure that favoritism does not happen and it does not act as a roadblock in recruitment process. It is also seen that employees refer candidates with same backgrounds as theirs which results in building up of a uniform workforce and reduces diversity.
Conclusion
To ensure a successful referral system, it has to be designed and implemented well. it is important to suitably award those employees who are bringing suitable candidates to the organization. Apart from this, the recruiting firms are getting affected by this trend. For senior level positions, companies are relying on recruitment agencies-so that area remains unaffected. However, for junior and middle levels, companies are trying their luck with referrals, which is impacting agencies and consultants significantly.
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