Clumsy businessman with his tie stuck in a paper shredderUsing employee referrals when hiring is one of the most exciting things to happen to talent management in the last decade. Sure, many of you argue that word-of-mouth hiring has been around for a long time, but job referral networks used to be much more closed, elitist and secretive and worked to keep top jobs within a select group of cronies. Thanks to the arrival of social media and a greater focus on diversity, word-of-mouth hiring has become a more politically correct, open and meritocratic affair, which a much broader range of folks can tap into.

It’s no surprise then that employee referrals have become the most influential form of hiring, according to countless studies. For example, Jobvite has shown that employee referrals account for around 40 percent of all hires, and this Oracle white paper highlights research indicating that some companies make up to as many as 75 percent of hires through referrals. The white paper also highlighted further research, which shows that referral hires are from 3 percent to 15 per cent better performers than non-referred hires, along with another study showing that referrals had a 25 percent higher retention rate than non-referrals.

Employee referrals are now pretty much seen as the universal medicine, the kind of penicillin for the talent management industry that can cure many of the ills stemming from the talent war. And while the power of referrals cannot be denied, recent research suggests that employers probably shouldn’t take a carte blanche approach to referrals and that they need to do some fine tuning.

This fine tuning relates to where they get their referrals from as all referrals are not equal. Yes, based on the findings of a study by the University of California/Berkeley, people who make referrals tend to refer people with similar productivity levels and characteristics to themselves. That is, high performers are more likely to refer high performers and mediocre performers are more likely to refer low performers. To be specific, profits per worker were roughly three times higher for employees referred by top performers than they were for employees referred by lower performance workers. The industries that were studied were logistics and call centers.

The findings of this survey strongly suggest that employers perhaps should adopt a less egalitarian approach to their referral schemes and that they should be a little more meritocratic, meaning that referral schemes should potentially be open to only the higher performing talent. This could be regarded as elitist by some, but it’s not really, because all employees have a chance to join the referral scheme as soon as their performance reaches the required standard.

Of course, it could be quite controversial to open a referral scheme but only invite certain high performing employees to join; you might have a minor employee and public relations tasks on your hands, to make sure that employees were aware of the eligibility criteria and what they need to do to become eligible for the scheme. Alternately, if you have a good enough selection process, then you may be able to screen out mediocre referrals anyway, meaning you could make your employee referral scheme open to everyone.

But, the path you choose depends on what you are using your referral scheme for. If you are using it to boost skill and performance levels and locate upper quartile talent, you should seriously think about a more selective membership approach to your referral scheme. But, if the aim of your scheme is simply to attract more, competent talent, then an all-access employee referral scheme will certainly help you to do that.

Good luck with finding top talent.

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