December 11, 2000, 1:25 PM — One of the hottest recruiting trends is expanding internal and external referral
programs. Referral bonuses, which sometimes approach the level of placement agency
fees, are becoming more prevalent. But before hiring managers jump on the bonus
bandwagon, they should consider some important questions.
- What constitutes a referral?
- Do referrals lead to more quality hires?
- Are referral programs invitations for employees to engage in "conflict of interest"
behavior? Are they an incentive to commit outright fraud?
To answer those questions, think of the times you have referred someone to the human
resources department. I have made over two dozen referrals during my career, with
spectacular results -- all but one of my referrals was hired, and they all stayed in
their jobs long enough to contribute. Why the success? I was willing to put my
credibility on the line, explain why the person would succeed, meet with the hiring
manager to pitch my candidate, follow up on the status of the position, and offer
continuing support to the friend who was hired. I never received a dime for my efforts.
(However, it did make my job easier to have numerous connections outside of the
mainstream organizational structure.)
In the 1960s, employers began to methodically mine employee referrals. They
developed campaigns to brand the activity as an important "team effort," and sometimes
offered rewards. But HR staffers quickly learned how wary employees were of risking
their credibility by recommending someone for a job. So HR made adjustments to ensure
that referral programs were fun, that everyone was acknowledged, and that results were
McGill University in Montreal conducted an in-depth study of the phenomenon and
found that employee referral programs were more successful when incentives were linked
to results: a higher-performing employee with longer tenure.
Almost all incentive programs excluded human resources professionals and department
(hiring) managers. The oft-stated reason was that it was those folks' job to find,
attract, and hire. There was also the possibility of collusion between the hiring
managers: "I'll hire your candidate if you hire my candidate." By hiring each other's
referrals, they could increase their income at the company's expense if they did not
hire the most qualified candidate.