5 Ways That Employee Referral Programs Can Backfire
(Are You Sitting Down?)

This Way or That Way?
Published: July 13, 2020
Last Modified: November 06, 2020
By: Dr. Matt Marturano
Image Credit: iStock.com/Sergei Chuyko

Holistic Recruitment is Inclusive of Employee Referrals

A holistic recruitment strategy will take advantage of many different sourcing channels. Open advertising via job portals and professional publications, mobile recruiting, stealth recruitment through backchannels, hiring a recruitment agency, employee referrals, and even good old-fashioned window advertisements all have their proper place and time in an effective recruitment program. However deploying the wrong strategy at the wrong time can not only waste valuable resources, or net you the wrong person for the job, but can backfire in unexpected ways.

There is no doubt that employee referrals remain a top source for hires, generally contributing about 1 in 3 new additions to a company's workforce. And for good reason. Candidates sourced through employee referral programs tend to be a better cultural fit than those identified through job board postings, and tend to stay longer. Assuming they are satisfied with their jobs, up to 66% of employees are eager to invite others in their network to join your company, according to Jobvite's 2020 Job Seeker Nation Report. In addition, a properly incentivized employee referral program is a great way to manage your company's overall costs of talent acquisition.

However, there are some drawbacks to employee referrals that hiring managers would do well to fully consider, especially when hiring for critical leadership roles.

1. Similarity Attraction Bias

One of the top risks of hiring through employee referrals is lowering the diversity of your workforce. According to Sarah Kathryn Stein et al., of the Stanford Graduate School of Business and the Hass School of Business at UC Berkeley, similarity-attraction bias "has been shown to be tightly connected to judgments of liking. This relationship is robust across many dimensions of similarity including attitudes, personality traits, and physical characteristics. And it carries through to the hiring process: interviewers are apt to give more favorable assessments of candidates when they possess similar surface traits."

In other words, it's hard enough for experienced human resource professionals to manage their own implicit biases, and placing candidate screening in the hands of untrained employees could lead to unintended consequences. People tend to refer who they like, and tend to like who is most similar to them, which can lead to an overly homogenous workforce that fails to produce novel ideas or innovations when you need them most- such as in times of crisis.

2. Unmet Expectations

A second way that employee referrals can backfire is when a suggested candidate is rejected by the hiring manager. Even though referred candidates might be perfectly likable, and otherwise a good match for a given position, it is often the case that other factors, such as salary or relocation requirements, come to bear on the final decision that is out of the scope of an employee's understanding or awareness. This could result in hard feelings among employees, or misperception with regard to the sincerity of aims of the referral program.

3. Rolling Interview Process

Things could also go wrong with the choreography of a rolling interview process, where new candidates are coming in haphazardly and entering the process at different stages. Angela Marturano, President of Orchid Holistic Search, cautions to "be prepared for the potential heartache and time sink of spending precious time sifting through hundreds of resumes (most unqualified) and executing a process, making an offer only to have the candidate accept another job because you weren't privy to the details of their search." Especially for time-sensitive hires, the advantages of working with an executive recruiter are that they will know the details of the candidate's personal search efforts and motivations, as well as any other offers which may be pending.

4. Organizational Challenges

When there are the things that could also go awry even when the interview process goes well and an employee-referred candidate is hired. Complications among interpersonal relationships and organizational hierarchy can ensue when the new hire and the referral source work at different levels of your org chart, especially if there is a perception among peers that an employee has a privileged relationship with a superior.

5. Risks of Social Recruiting

Finally, mass communication of job postings by way of employee social recruiting may expose your organization to legal and ethical risks. As explained by RPO Edge, especially when reaching out via personal pages, your employees "may indirectly make assertions into the race, national origin, age, sexual orientations, and other things subjected to the Employment Non-Discrimination Act" that could result in potential lawsuits.

To be sure, employee referral programs are here to stay, and come with their own set of advantages. However it is important to carefully weigh several risks against the potential savings in employee acquisition costs, as many of them, such as loss of organizational diversity or social capital are not as easily recoverable as cold, hard cash.

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