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Employee Referrals: The Benefits and Risks

By Merhawi Kidane on February, 2 2022

Posting a job opening on a job board may generate hundreds of responses, but the quality of candidates is typically all over the map. Instead, many companies are turning to their own employees for referrals before resorting to job boards, and are creating successful employee referral programs.

The employee referral advantage

Sourcing candidates via employee referral programs is a low-cost sourcing method. New hires referred by your employees are often cheaper and faster to hire because they come through grassroots networking. This eliminates the need for costly advertising and lengthy early-stage screening steps.

Referrals also out-perform other candidate sources. Jobvite’s 2018 Recruiting Benchmark Report shows that even though 90 percent of applications come from job boards and career sites, the leading source of new hires (27 percent) is employee referrals. Plus, 78 percent of companies say employee referrals are their most important source-of-hire, according to Entelo’s Recruiting Trends report.

New hires that are referred by your employees have an advantage when it comes to getting acclimated to the job. From day one, they have someone who can introduce them to others and give them the behind the scenes tour. This accelerates their ramp-up time and helps solidify loyalty in the early days on the job.

New hires, from employee referral programs, also have greater tenure than other sources. Jobvite found that referral hires have greater job satisfaction and stay longer at companies – 46% stay over 1 year, 45% over 2 years, and 47% over 3 years.

Building your employee referral program

Building an employee referral program and getting quality candidates isn’t as easy as it sounds. You can’t simply send an email to your employees asking for referrals. The best employee programs make referrals part of the corporate culture by posting job openings on their social media sites, encouraging employees to share the postings with their networks. Celebrating referrals and incenting employees to provide referrals generates a greater flow of potential candidates, and gets employees excited about bringing their peers on board.

Proceed with caution

Not every candidate referred by your employees will be a great match for the job. Even if the suggestion comes from a top performer, you still have to proceed with caution. The screening step of the employee referral program is just as important, and perhaps more important, as it is with other sources. We want to believe our friends will be a perfect fit for a certain job. Employees may be quick to overlook a friend’s flaws if it means they can have adjoining desks and long Friday lunches. They may even coach their referral on what the hiring manager is looking for in an interview, to help bolster their odds of getting hired.

You still need to conduct screening interviews, assessments, face-to-face interviews and talk to references -- who don’t work for the company -- to validate whether the candidate’s skills and attributes match the requirements of the job. When there is a lot of emotion attached to a candidate’s journey, an assessment introduces much need quantitative data about whether they are truly the right fit. It helps you balance the bias that can occur when a great employee sings a candidate’s praises and offers information about their strengths and weaknesses, including whether they are strong leaders, good problem solvers, and effective communicators. Pre-employment assessments validate those statements and ensure referrals face the same rigor as every other new hire.

Employee feedback is important

The best employee referral programs include a step for feedback to employees about the status of their referral. If the referral ends up being hired by the company, that's awesome. But if the person referred isn’t well suited for the role, assessment data can help you craft the conversation with employees as to why the fit isn't ideal. While you wouldn’t share a candidate’s assessment report with an employee, you can tell the referrer their candidate wasn’t quite the right fit based on the key performance indicators measured. Knowing this, the employee will be more willing to suggest potential new hires in the future!

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