The Benefits of Hiring by Referral

Norm Clausen on June 16, 2014 11:00:00 AM EDT

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This is the second part in our ongoing series on recommended sourcing techniques. For other parts of the series, please view:

#1 Internal Promotions
#3 Job Boards
#4 LinkedIn


Regardless of your company’s HR structure, you’re sitting on a tremendous network of effective recruiters—your employees. Why not leverage this network and bring quality candidates your way with very little outreach? 

Referrals have always been an effective way to bring in new hires. Existing employees are much more likely to vouch for contacts that will reflect positively on their own reputation. Hence, you’re more likely to find that ideal candidate through a referral than through a random search. That’s typically backed up by superior productivity. Depending on the industry, referred employees are 10-30% less likely to quit and yield a higher profit per employee while having significantly better performance on high-impact metrics like patent creation.



It’s no wonder that referred employees are twice as likely to get interviews at places like the Federal Reserve Bank of New York, and anywhere from seven to ten times more likely to be hired overall depending on the industry. Imagine spending a tenth of the time and resources to make all of your future hires. That’s the potential power of your internal referral network.

Until recently, however, the outreach required was extensive and time consuming. Employees needed to engage in the tedious process of individually calling and emailing their contact. With the advent of social networking, internal referrals have become a more viable sourcing technique. The increased connectivity of networks like Facebook and LinkedIn allows employees to quickly reach out to hundreds, even thousands of their personal contacts in seconds.

Even with the increased power of this sourcing method, Employee Referral Programs can be disorganized, distracting for employees, and difficult to track and reward. Their increased popularity, however, has prompted a number of centralized systems to hit the market.  Many Applicant Tracking Systems (ATS) have built in referral tracking and third party applications like Zalp and Jibe’s “Get Referred” platform allow you to more effectively organize your internal referral efforts.

Capitalizing on the potential that has been opened by technology, companies like Ernst & Young, Deloitte, and Enterprise have aggressively targeted the growth of their employee referral programs. They’ve set lofty goals for increasing the percentages of new hires made through referrals and backed that up by offering new prizes like iPads and big-screen TVs in addition to traditional cash bonuses.

Below, we've included a more comprehensive list of the potential pros and cons of filling your open positions through employee referral.

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• Quality and Speed: Employees only suggest candidates that reflect positively on them, so they can usually be fast tracked through the process. • Lack Diversity: 61.3% of employees refer a candidate of the same sex, and 71.5% suggest one of the same ethnicity.
• Corporate Fit: Pre-vetted by existing employee for applicable skills, work ethic, and cultural fit. • Confidentiality: Job search cannot be run confidentially. Especially sensitive if the goal is to replace an existing employee.
• Affordable: Usually just a small referral bonus to existing employee. • Distracting: Searching for new referrals can be a distraction for existing employees.
• Morale Boost: Bonuses are excellent for building morale for existing employees. • Unfocused Search: Difficult to get entire employee network to focus on new hires.

Of course, every situation is different. Typically employee referrals should be one of the first options you consider for filling open positions. However, if you find that the cons outweigh the pros in your particular situation, you should find another avenue. If you haven't already explored potential internal promotions, we highly advise doing that before looking to hire externally.

For a full discussion of different recruiting strategies, download our recent guide: Source Talent Like a Pro: The 6 Strategies That Top Companies Use to Win the War for Talent.