Employee Referrals: Boon or Bane

Employee-referral programs have been used for decades to fill about 30 percent of job openings. Your company may have an employee-referral program, but is it being leveraged to close positions quickly?

As reported by The Economic Times- “Leading IT companies like Wipro have doubled cash incentives for each new hire joining through internal staff reference from around Rs 20,000 paid earlier to Rs 40,000. Rivals Infosys Technologies and Tata Consultancy Services too are doling out more incentives to encourage those on their payroll to search for and bring in staff.”


For HR teams at tech firms, hiring through referral schemes is a lot easier. Referrals provide them with an opportunity to hire ready talent.
As per NASSCOM, over the next twelve months, India's over $50 billion IT industry is expected to hire another 2, 00,000 employees, much higher than the nearly 80,000 gross employee additions the industry reported last year.

Benefits of Employee-Referral Programs
• Employee referrals are a good source of passive candidates. They help expand the employer’s pool of potential, higher-quality candidates.
• Employees usually screen their referrals closely which helps ensure higher quality of candidates.
• The monetary bonus paid to an employee for a successful referral is a significant morale booster. It motivates employees to refer candidates, even when no positions are available.
• More expensive recruitment channels such as newspaper advertising, employment agencies, job fairs, etc. can be replaced by referrals to reduce recruitment costs.
• Referrals can be used to fill highly specialized positions that might be difficult to fill through conventional sources.

Disadvantages of Employee-Referral Programs
• Relying upon an employee-referral program excessively can lead to organizational behavioral problems.
• Bonus qualifications or excessive qualifications for employee referrals that are too restrictive can lead to the employee-referral program becoming a source of employee dissatisfaction.
• At times competing businesses may have issues with you stealing their happily employed workers via employee-referral programs.

Overall, the benefits of employee-referral programs are a lot more as compared to its potential pitfalls. An employee-referral program is a critical part of any company’s recruitment strategy. HR teams should have well designed referral programs in order to leverage them.