Are Employee Referrals really better?
Hello all,
From what I have read, it is generally accepted that referrals are a great source of candidates, and in many cases they are claimed to be better than any other source. "Conventional Wisdom" supports this claim. However, when I look at the hiring percentage of referrals, I find that they are hired at the same percentage as other sources of hires. It seems that if this were a "better" source of hires, the hiring percentage would be higher...What are your thoughts on this topic? Are referrals really better?
Thanks,
Kevin
Answers (31)
Well, I can only comment on work involved in referrals and other hires.
When you ask your own employees to refer for a specific job with specific expertise, its more probable that you get 5 out of 10 candidates, that can fit into the job. With other hires it can be <=1. So the work involved is more in terms of other hires, though you get only 1 person for the job in any case.
Also when employees refer there is a sense of responsibility and passion to work for the organization referred, both for the employee and the referral
Hi Kevin,
My experience is that the quality of hires may be better from employee referrals rather than the quantity. Employees are eager to refer friends and associates that have excellent track records with former employers and are people that they truly respect and would want to work with as a colleague. They are hesitant to just open up their rolodex and refer many people because they don't want to be associated with a bad hire....and since so many referral programs defer the referral bonus ( or a good percentage of it) until after 90 days, the employees are being selective about their referrals, which is after all, what you really want.
Joyce Prescott, SPHR
Prescott & Associates
Human Resource/ Organizational Development
Consulting Services
I would also consider the corporate longevity of the referring employee when considering the quality of a referral. The stigma of associating with bad hires would likely be more of a consideration for an employee with 5-10 years than someone with <1 year at the company.
Greg C
Human Resources Consultant for Small and Mid-Size Firms
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I think that there are 2 measures to consider when looking at the effectiveness of any recruitment source; the percentage of hires from that source and the quality of the employee from that source. The first measure is a short term one and the second is a much longer term one. When I have talked about referrals being a great source, I always assume that it means a better employee, not just more employees. Take a look at the quality and see if that helps with your evaluation.
Rolf Marvin Bøe L
Senior consultant at Psykologtjenesten AS
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It would depend on the quality of your other recruitment processes. If the pool that your recruiters select from is larger than the eligible contacts your employees has, then referrals is not necessarily the best source.
Referrals is the safest source, however – the chance of hiring a total misfit is lower because their track record is so well documented. On the other hand,
hiring from referrals increases homogeneity in the company, which may increase group cohesion and groupthink, and reduce creativity.
If you have an excellent recruitment process, using the best tools available for recruitment, then your chances of finding excellent staff might increase by going outside of referrals – again, given that the pool you recruit from is large enough.
I had seen it myself where 7 people (5 engineers, 1 HR, 1 hiring manager) interviewed candidate with 15+ yrs of experiences and did good on interview; 3-months into the job, could not produce what he claimed he was good at. 1 yr into the job, he got laid off.
I had also seen a referred employee: did good on interview, did not produce a lot after working, The dilemma, the hiring manager referred him in but he has yet to let him go even after receive three (3) complaints from other people.
Also heard about a VP bringing in his group of people, after 1 yrs - the company did not do good. But they have accomplished of milking the company's money. I assume the VP find another company as a victims then bringing in his cronies back with him to milking it again...
Any companies that I have worked, I've seen it all. The hardest part for team member to bring the issues are when the person who refered is a manager or higher position. How to bring the issue without the messenger got killed or create bad relationship...?
Again, when you try to say that the employee is not doing a good job. The person who refered them translating and hearing: you the manager or higher position guy had referred a non-qualified person.
True, the person went to interview and were hired. So, it should be true also to let the person go when the person don't perform.
Point to ponder: Referrals can be similar to Nepotism.
If I were to practice referrals and nepotism, then I would be a very "strong leader" that will "killed" those people when they don't perform to "protect the integrity of the company". Otherwise, I am not fit to be a "leader".
Everyone makes mistake, including leader. To admit mistake and learn from it to become a better leader is the quality of a "true leader".
Kevin,
I found if the employee refering a friend is a good employee (punctual, dilligent, etc.), the referral will be good. I the employee is mediocre, you could end up with a new employee that last a couple weeks or months (therefore not being worth the time in training and such), or they could be an outstanding addition.
Hope that helps,
Marianne
I think % of employee-referred candidates hired is not where you'll see the benefits of any employee referral program. The real success of the program should be measured in the % of those that are hired integrating into the organization in the longer term. This percentage should be much higher as your employees understand the organization's values and culture. When they put there personal stamp of approval on someone, they're saying that this person would be a fit with the organization.
Now, what your employees don't always quite get is what you're looking for in an ideal candidate for a particular position. Hence you may find a better candidate for XYZ position through another source. However if you look at the percentage of those candidates hired from employee referrals that become successful performers you will find that percentage to be hire than average.
Neil F
Director, Tribal
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Hi Kevin
I think a trap that's easy to fall into is thinking that one thing works all the time, every time.
If you consider a blended approach for attracting, retaining and managing your talent, then Employee Referrals should be a strand and not the panacea.
But hey, you're Microsoft and I'm Neil... what do I know?!
I would say maybe 50% of referrals work out well. Most employees will want to refer a good employee. In some cases, this referral may be a good employee for a position, but it might not be for the position that is open. In the company where I am currently employed, we've had more of a success with referrals, for the employee sending the referral looks at the actual open position to match with background needed. We offer an incentive and do speak with the candidates to take a look at the perspective employee.
Regards,
Patricia Gulledge
HR Generalist
First Preston Management
Michael D
Senior Recruitment Consultant at Salesforce.com
Best Answers in: Staffing and Recruiting (1)
Hi Kevin
This is a great question and one that I have had asked of me many times. There are a large number of studies out there which will tell you that a referred candidate will stay longer, in general be a better immediate fit and more likely outperform someone from a random introduction. Why is this so?
Some of the reasons have been mentioned already - people have a personal stake when they refer as it reflects badly on them if the person is a dud, you will get a smaller number but likely a greater return from them and it is a less discriminate process.
Personally I love referrals and we aggresively run an internal programme around this as our results are outstanding from referrals. Great people know other great people and have the ability to discern if they will be a good fit for your current need. The initial qualification process is already taken care of and you can get down to the nuts and bolts of a role.
Lonevity of tenure, ROI, specific fit to purpose and overall quality of candidate have made referrals a tremendous source of success for my business and I see no reason why it won't continue to do so.
I hope that helps and best of luck to you.
Michael
Hi,
When we had started the referral scheme, the idea was to get as many minds into recruitments, so that we had candidates where attrition rate were high. The second aspect was that the candidates refered were more or less genuine candidates, and it reduced the market risk by roughly 60%. But there was a risk of some making it a regular business of just refering candidates, and not checking their credentials. Also the chances of refering candidatesby employees after withdrawing the scheme was grim. That is why we cut down the scope pf the scheme and allowed only certain positions where attrition was high to be covered under the scheme.
Regards,
V Viswanathan
I agree with Neil's comments above, that one method of recruitment is rarely successful for every opportunity within an organisation. We find that employee referrals have resulted in some excellent hires in technical areas of the business and have even effectively replaced an exiting employee with an associate he recommended.
For more senior or 'creative' roles we have had less success with referrals and we find that the further up the ladder you go, the less willing people are to put their neck on the line by recommending an associate for a role.
It may also be that in a technical role where specific skills are very important, so long as the individual's personality is a decent fit within the team, there are fewer milestones to pass during the recruitment process so the existing employee is able to make a more accurate assessment of what the employer is looking for in these hires.
David H
Recruiting Specialist at Nationwide Insurance
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Being an employee referral is no guarantee that the candidate will make a good employee.
When considering an employee referral, you must also consider the employee doing the referral. It is true that most employees will refer someone that they like and want to work with. But this does not always mean that the candidate will make a good employee. My experience has been that the higher the skill level and the longer the employee has been working for the company, the likely hood the referred candidate will be a quality hire. And the inverse of that has also tended to be true. The lower the level of employee and the shorter the time the employee has worked for the company, the higher the risk in hiring the referred candidate.
The bottom line is that there are no guarantees in recruiting. You must be thorough and diligent in every hire you make.
David
Madhusudhanan A
Assistant Vice President at GCI Solutions Private Limited
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As pointed out by many postings below, it depends on what is meant by "better"
- Quality of hires (out of 10 people, 5 people from the referral pool got a 4 on 5 rating versus only 2 people from the job failr pool got a 4 on 5 rating)
- Higher conversion rate (e.g. 10% conversion from newspaper advertisements versus 50% conversion from referrals)
- Pure and simple, got many more prospective employees than any other source.
Quality of hires may be better, depending on :
- The age of the referring employee in the organization. The longer he worked for the organization, the better he understands the history, people and culture. He is able to make a better judgement of who may or may not fit.
- The seniority of the referring employee in the organization. A senior person is more likely to refer a better candidate, as if he brings unworthy candidates, it could become a blot on his reputation (nepotism ! as somebody called it)
- The number of years the referrer knew the referral candidate. If somebody refers a candidate, who he knew for only 6 months, the quality of referral is relatively suspect than if somebody refers a candidate he knew for a number of years.
- The performance of the employee. High performers are bound to bring high performers and mediocre ones may bring mediocre ones.
- Regarding conversion rates, my experience in India is that it is not greater than other sources. For the simple reason, that most of the referrals target the junior level positions (which are higher in number) and hence the referring employees are relatively junior. Consequently, they are unable to understand the organization well and are unable to judge fit well. Targeted newspaper advertisements or pre-arranged job fairs probably have an edge over referrals in terms of quantity.
Just like to differentiate between recruitment and selection processes, recruitment is getting a pool of prospective candidates and selection is picking out of them. The more robust your selection processes (tests, interviews etc.,) are, you should not be relying only one recruitment source (viz., referrals). The more broadbased your recruitment is (campus, job fairs, job-sites, consultants, referrals etc.,), the more diverse your workforce is, which is good as people have pointed out (avoiding group think, reducing creativity are results of a very homogeneous workforce).
Clarification added July 7, 2008:
Regarding pure and simple headcount numbers, the experience has been that newspaper advertisements generate higher number of profiles than employee referrals.
Michael P
Recruitment Supervisor at Sharp HealthCare
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Hi Kevin,
I think that employee referral programs have the potential of being the best source of candidates, but simply having a program does not yield those results.
In addition, measuring the program through number of hires is only providing part of the picture… the true benefit is what that hire does after they are hired.
From what I understand a best practice employee referral program will result in anywhere from 40+% up to 80% of your hires. When measuring the number of hires, be sure to measure the hires within the areas that you are targeting in the program… if a sizeable percentage of your hires are in lower priority positions that do not pay a bonus (entry level, general clerical, unskilled or semi skilled work, etc.), then it would not be an accurate measure to compare your employee referral hires to all your hires.
In addition, a well run employee referral program, that is appropriately targeted and administered should yield new hires that have a higher offer acceptance rate, are better cultural fits, better skills matches, more productive more quickly and will likely remain with the organization longer all for a lower cost.
Please let me know if you have any questions, I am currently working on revamping our employee referral program.
Mike
Catherine N
Recruiting Management/VP- HomEq Servicing division of Barclays Capital [LION] (catherine.nelson@homeq.com)
Well I have the statistical data here that the answer is yes. The largest percentage of new hires that do well in our orginization through their future MBO scores and reviews are referrals. We track the source of the associate, 90 day MBO and first year review. We also find they are the lowest source of our attrition for they stay longer. They may be hired near the same percentage as others but they consistently perform better over the years.
A good referral program that is paid consistently on time can be a great bonus generator for your employees and sourcing tool for HR. All referrals are contacted by our recruiting team whether they fit the requirements or not. It helps when you have a good environment to work in and good employer branding in your community.
I guess it can vary by business but here the answer is a resounding YES.
I think it highly depends on (and is an indicator of) the morale at the workplace.
If the morale at work is fantastic people tend to pull in their friends to share the fun (which doesn't necessarily means partying - work can and should be fun as well!). Typically this is not the case when employees would think of their loser cousin Fred to help him land a job, but rather invite fun, active and interesting people to maintain and amp up this vibe at the workplace.
On the other end of the spectrum you have workplace with low morale, where people not only don't bring their best and most valuable buddies along, but also discourage everyone else from joining something they don't personally enjoy. This is usually the time when companies start introducing various incentives for bringing in new employees and it typically renders average results in terms of percentages and - more importantly - quality of the candidates.
My experience is: if referrals quality and rates are lackluster and you have to "buy" references from your employees, stakes are high that there are issues with work morale in your company.
Mark W
Godfather of Las Vegas at The Foundation - www.godfatherlv.com
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Absolutely! Saves the company recruitment fees, and you get someone that is being vouched for by a current employee. Even better? Promote from within.
Mark Wayman
The Godfather of Las Vegas
www.godfatherlv.com
Marietta C
Executive Director, Friedman & Wexler, LLC - Collection Law Firm - Consumer/Commercial
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Well, first, my personal view is that, I'm not going to recommend someone who would NOT be a good hire, since their failure would reflect badly upon me ...
Next, granted the person making the referral has, like me, carefully considered whom they would or would NOT recommend, especially in your OWN workplace, I think their experience and already gained knowledge of the candidate can be invaluable -- something you don't get in a resume!
In summation, the answer should be "YES", they should be better!
Best .. Marietta
After reading this question I felt compelled to reply. I had a very heated and harsh conversation with one of my previous clients regarding this "conventional wisdom" a few years ago. Their view of the situation was that they internally could generate a greater number of hired referrals on a yearly basis than the outsourced agency could place, thus asking us to justify our services. What a statement a bold statement to be made by any hiring manager.
If we are to look at this situation from a logical wisdom perspective: how many times can you dig up your little sandbox in the backyard before you run out of bones? and who's bones are they?
The simple fact remains is that your employees (for the most part) have limited networking pools to pull from and as many have said before will encourage group think, and many similarities in the organization.
This question goes way beyond better or worse, quality and quantity. If we all drop the deep metrics for a quick second we will see that employee referrals are nothing more than one of multiple sourcing avenues available to a recruitment professional. Build your candidate pipelines with candidates from all sources and find the best that rise to the top.
Steve C
Test Project Lead
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This is similar to only hiring people you already know, which I think is awful for morale and overlooks large numbers of talented people
Wow, some emotional responses here!
While the percentage might not be higher than other sources, I have found from experience that referred employees are of higher quality than the average. I did a full analysis of the employee referral program for my last employer, using about 4 years worth of historical data. I'm pretty comfortable that for that organisation at least, that quality of hire made the program worthwhile.
So while referrals might not me more numerous, they can be better than other sources. Besides, why rule out any potential source of good candidates? Referrals are pretty good value too!
Jeff L
HR Director
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I've found that employee referrals usually generate high volumes of "recruiting chaff" and a low number of quality hires. Despite the low number, I've found that our ratio of "good hires" were generally better that traditional methods. We typically hire 5%-10% thru employee referrals. I've used programs that produced nearly 30% thru employee referrals.
Tim B
Serious about positioning your organization for the rebound? Stop leaving money on the table.
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Conventional Wisdom is no way to run a business. Real hard data is much more reliable. In the HiringSmart online system all candidates are tracked by referral source as they enter the process. Along the way in real time a referral report tracks each candidate through the HiringSmart process.
Statistically it is clear that for companies that implement a referral from existing employees, referrals not only generate more candidates, but a higher percentage of this group get hired vs any other attraction strategy. The referral employees stay longer and score higher on performance reviews.
The step in the Hiring process that makes the biggest difference in quality of your candidate pool? Getting the first message right in the attraction strategy. In Seven words or less why should someone work for you? Will the candidate find your statement to be true 6 months after they are hired?
Links:
I work for a company in which "care" is our product. Our company believes in building our teams on employee referral programs because those employees with the kind of caring attitude and effort that work for us would only want to recommend those same types of people. Additionally, there are many monetary incentive programs that are wrapped into the ERP. Of course you can find many applicants in many ways, but if you are looking for a specific type - a personality, something subjective, innate, that cannot be taught (you can't teach a porcupine to be a teddy bear) - then asking those employees who have those traits to recommend people can help to find you gems. Another part of this equation is that a current employee feels pressure to find people who aren't going to quit on them, making them look bad to the company - and the retention rates are a bit better. Add a little money for incentive, and you can really grow you candidate pool or bench strength. One other note is about being an employer of choice - branding and marketing your business based upon the types of employees you hire. You want the cream of the crop - we all do - so use your cream to grow your crop.
Tom B
Human Resources Manager at Texas Air Composites
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"Key findings for 2006 include:
33.9% of all open positions were filled by internal transfers and promotions.
Referrals (25.6%) are arguably the number one external source. Employee referrals make up 95% of all the hires attributed to this category.
The impact of the Internet is so pervasive that it is reasonable to imagine that every source of hire has an internet component. It may have been part of the research done to find candidates or the source of information candidates uncovered which caused them to apply. The internet is also increasingly the major means to apply and communicate no matter what the original source.
Hires attributed to the “Company Website” are suspect (we maintain that the company web site is a destination not a source). Respondents still report that this SOH represents 20.7% of all external hires.
Hires attributed to specific Job Boards (Monster.com, CareerBuilder and HotJobs) and generic Niche Boards represent 12.3% of External hires."
Links:
Hi Kevin
I agree with other answers, which is that the quality of the hire is improved rather than the quantity. There are figures to show that attrition in referral stats are lower.
Referrals have to be worked as a source as much as any other! In Honeywell, we have a referral strategy which includes poster campaigns, contacting new starters, as well as the standard methods including an attractive referral amount. It has been interesting to see the variation at Honeywell in terms of Business Unit and locations, some geographical areas produce more than others and the amount of the referral fee has considerable impact with some areas offering £500 or £1500.
One further consideration is that the referral fee goes to an internal employee rather than an agency - which is motivational and also there is then some incentive by the employee to ensure that the hire is successful - well briefed on the Company etc which then shows more engagement in the interview process.
Thanks
Anna
The quality of your referrals is dependant on the incentive to refer. If the place you work at is a great place to work, people will refer friends. If it's not but there's a big bonus on offer, they will refer acquaintances for cash!
At heart, It's an employer branding issue.
Robert G also suggests this expert on this topic:
Hi Kevin,
In my experience as a corporate recruiter, I find that when employees are asked to submit referrals for a specific job versus a general job, the success rate of finding a candidate who is the right fit is rather high. Referrals have more of an allegiance to the organization and they tend to be of a better quality.
The only time I found referrals to be of a burden is when the referral is simply based on nepotism. If the candidate does not do any research on the organization, and assumes they have an automatic “in” without understanding the organizations values and culture then the referral will be a waste of time.
