10 Pros and Cons of Employee Referrals

Many businesses today either have an employee referral program or they’re thinking about instituting one. The simple fact is that word-of-mouth marketing for open positions is a practice that is almost as old as time itself. A referral program simply rewards employees for what they are doing already. Before implementing this type of program, it is important to evaluate all of the pros and cons of employee referrals to see if it is the right system for you. Here are some of the key points to think about.

What Are the Pros of Employee Referrals?

1. It’s a way to bring in high-quality candidates.
The goal of any open position advertisement is to gather a pool of qualified candidates to evaluate. By having current workers vouch for the people they recommend for a position, the pool of candidates can have an overall increase in the level of skills that are available. Because a recommendation can affect a worker’s career, care is taken during the vouching process.

2. Rewards can encourage hesitant workers.
Many companies will offer a monetary bonus when a recommended candidate receives a job and/or works for a certain amount of time. This type of program cuts the recruiting costs a company may have while rewarding current employees for their good judgments. It’s a win/win/win situation because morale is increased, workers are rewarded, and open positions are filled.

3. It also simplifies the recruiting process.
Many small businesses are outsourcing their recruitment needs simply because they can’t afford the internal staff required to do it themselves. In this type of situation, recruitment is simplified because instead of having a presence at job fairs, employment agencies, or other recruitment locations, the initial screening for new employees can happen internally.

4. The retention rate of referred employees is generally higher.
Because referred candidates already know at least one of their co-workers, there is a higher level of comfort with a new position. It takes less effort to get to know the company culture and the relationship can enhance productivity from the newly hired candidate as well. This makes for a happier worker, which can reduce overall turnover rates in time.

5. It fills specialized positions.
Many employees know someone who would be perfect for a specialized position. By getting their expertise, businesses can find candidates much more easily because they have a more intimate knowledge of each skill set being reviewed.


What Are the Cons of Employee Referrals?

1. It alters employee relationships.
One a referred candidate is hired for a job, the rest of the workforce can feel like it is an us vs. them type of environment. Resentment forms very easily in this scenario and the two employees will typically become alienated from the rest of the team.

2. It can creates charges of discrimination.
Employees who are highly qualified for a position, but are rejected for an open job in favor of a referred candidate, may have a legitimate discrimination complaint. Although there may not be any legal consequences to such a complaint in every instance, the complaints can begin to tarnish the reputation of a business.

3. It limits creativity.
When people know one another, they often think the same. They share opinions. They tend to have similar creative processes. This means a business which relies heavily on employee referrals might discover a lack of new ideas coming forth over time. It can even create organizational problems because thinking patterns in each team are relatively similar.

4. It can create disillusionment within the workforce.
Some workers don’t know anyone that they could recommend for a job. Some workers will feel that any strict guidelines or requirements that referred candidates must meet will limit the rewards that can be earned. When this happens, any discontent or negativity which is being experienced by the workforce is going to be enhanced.

5. When you lose one employee, you may lose more.
What happens if a referred candidate needs to be fired for some reason? There’s a good chance you’ll lose the person who referred them as well as a “protest” to your actions. If one person has referred several people to a company and they’re all very tight-knit as a group, a business could lose an entire team overnight.

The pros and cons of employee referrals show that a carefully managed program can be a good thing, but everyone must have a chance to earn the rewards of a referral in some way. If a business can make that happen, then the cost of filling an open position can be dramatically reduced.

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