Pitfalls of Employee Referral Programs – Lessons to be learned


Employee referral programs (ERP) is gaining popularity among companies across the globe. They are very beneficial in hiring quality candidates, reducing the time and expense related to hiring process and also helps employees to attach emotionally to the company. However, the ERPs are not free of pitfalls. There are many negatives associated with the program which must be addressed to make it effective. Many of the drawbacks cannot be removed but can be significantly controlled.

Employee referral program is not merely about money. It is all about empowering an individual employee to create a team of highly skilled and motivated team members with a high commitment quotient. Hence, employee commitment towards the program is very essential.

One of the most basic problem that arises is that the most skilled and relevant candidate may not be acquainted with the employee of the company. Hence, heavy reliance on the ERP can lead to losing out on such candidates. The companies also face the risk of excess criticism from deserving candidates coming from other source. They can claim the company of being partial in the selection process if they will favor candidates referred by their employees very often. The referred candidates will have an advantage over the candidates from other sources as the employee will be able to get them the questions for the interview.

Related Article: How To Use Social Media To Increase Effectiveness of Employee Referral Programs?

Excess hiring through ERP will lead to company lacking in employee diversity as the employees will tend to recommend people who belong to their social groups. This will not happen only if the existing set of employees belongs to well diversified social strata. It will also affect the representation of the minority class.

The hiring through ERP runs the risk of formation of groups which can lead to favoritism, partiality and discrimination in the team. The referring employee might try to take advantage from his referred candidate. It will lead to problems connected to behavioral issues. The performance of the referred candidate can dip and run a higher risk of leaving the organization when the referring employee quits the company.

Many companies complain on the negative aspect of ERP as many times their best employee gets hired by other companies. This risk has to be borne by every company

A mismanaged reward system can cause discontent among the employees leading to decreased participation in the program. A very high reward program affects the cost of hiring where as very low reward affects employee participation. An optimum level of reward is necessary but the company should keep experimenting to keep the interest of the employee alive. This issue has been resolved in many companies by offering non cash reward which can be changed frequently and keep the employees guessing.

Most of the employees tend to see the program merely as a source for earning extra income. Hence, they refer any candidate who fits into the job without knowing the person well. It leads to bad quality of referrals. Many a times, situation arises where the employee has referred his friend’s friend who undergoes the interview process to get an offer letter with a good salary. He uses the same to negotiate his position in his company or any other company for higher salary.

Many companies pay their employees for making referrals even if the referred candidate does not get hired. They do this to encourage employee participation in the ERP. Many employees try to take undue advantage of such an opportunity. They manipulate the CV according to the need of the vacancy to earn referral payout.

Many employee see the participation in the ERP in terms of spending extra time for the company when their schedules are already very hectic, being involved in important projects. They also get discouraged if the tracking of the referral reward is very time consuming. Quite often they are required to remind their respective HR for the referral reward and if the same is not tracked on time, they easily lose the reward when the payout cycle gets over.

Tracking mechanism of the ERP is an important aspect for the employees to find out their productivity in referring candidates. They will not get to know if their referred candidates are being hired or not and the reasons behind non-hiring, if the status is not published in the portal regularly and on time. The employees must be given feedback on their referred candidates by the HR which happens very rarely.

The ERP has the potential to affect the productivity of the HR in terms of getting the right resume on time for the given vacancy. When an employee has referred a candidate but did not get selected, the resume remains in the HR’s databank. The HR needs to look for resumes which are already there instead of only relying on new referrals. There are chances of duplication if the candidate gets chosen and the same person had been referred earlier. In such a case the referral reward goes to the other person and the employee feels cheated. Instead, the HR should have conducted internal search of resumes and credit should have gone to the employee.

Usually in any ERP, the employee can refer candidate for a given skill set but the candidate might be trained and experienced in many skill sets for which he can be hired. But his chances of getting hired get restricted to a single skill set.

Hence, care must be taken in implementing the ERP and managed efficiently. The HR should learn from the negative elements of the program and work towards either eliminating the same or keeping them under control.


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