Companies have been using Referral Programs for a long time to offer incentives to existing employees to source new employees.
Referral offers the following benefits:
- It’s cost effective. Companies pay a fixed fee to their employees for referrals, which tends to be a fraction of the compensation-linked variable fee they pay to external recruitment agencies.
- It’s effective. Existing employees know the minutiae of their company’s culture, hierarchy, technology, customer base, and so on. As a result, the candidates they recommend tend to have a better fit for the company than rank outsiders sourced by recruiting agencies.
For some more benefits of referral, see What is Employee Referral?
Definitely truth but why painful? Employee Referral has been a low hanging fruit for recruiting for ages.
— Ketharaman Swaminathan (@s_ketharaman) July 25, 2019
Because they offer many benefits to companies, referral programs have proved to be a very effective way of attracting new talent, especially in knowledge industries like IT, BPO, Consulting.
That said, referral lacks scale. I’ve noticed that referrals spike when somebody just joins a company (perhaps because that’s the most pragmatic time for their dissatisfied ex coworkers to reach out to them to seek a change of job to the new company). I seriously doubt if any company can fulfill its entire talent needs only via referral programs.
That’s why, despite the superior price-performance of referral programs, companies continue to use recruiting agencies to carry out conventional form of hiring. But I digress.
By its very nature, referral favors friends and relatives of existing employees for jobs in a company. Ergo it leads to favoritism.
So does nepotism.
I have no idea whether nepotism is legal or not in a private sector company. But it’s certainly politically incorrect.
Given the current public discourse around nepotism in Bollywood, business owners and HR leaders might be wondering if they should continue with their referral programs since they bestow preferential treatment on some people over the others. I got this feeling after reading this question on Quora.
I have some thoughts on this hot topic. I’m going to share them even though I’m not an HR / Recruiting expert and despite the fact that this post deviates from the regular topics of this blog.
Merriam Webster dictionary defines “Nepotism” as follows:
The unfair practice by a powerful person of giving jobs and other favors to relatives.
As we’ve seen, a Referral Program also creates favoritism.
Therefore, on the surface, they resemble each other.
But, when we scratch the surface, we can find many differences between Nepotism and Referral:
- Nepotism is restricted to “relatives” whereas Referral can involve friends and acquaintances
- Nepotism doles out favors to relatives regardless of their qualifications for the job. Referral Programs source candidates that are “good fit” in the eyes of existing employees. Therefore their basic goals are very different
- Nepotism specifically involves a “powerful person” such as the business owner or CxO level employees. Whereas Referral is open to all employees. In fact, to avoid conflict of interest optics, many progressive companies don’t let their top level executives participate in their referral programs
- There’s a guarantee of job in nepotism whereas, under a referral program, referrors can only recommend known people for jobs. The people so recommended generally go through the whole nine yards of the company’s hiring process. It’s entirely up to the company to select or reject the referred candidates during that phase.
There are probably a few more differences that don’t come readily to mind but I think we can stop here because we’ve already listed four reaons why Referral is not Nepotism (versus only one reason why they’re similar).
With the tally at 4:1, I’ll declare that Referral is not Nepotism. There’s no need for business owners and HR leaders to ditch their referral programs.
PS: Many companies reward existing customers to refer outsiders to sign up for their products / services. While that’s also done via Referral Programs, they have nothing to do with jobs. Therefore, we can ignore that interpretation of the expression in the context of this blog post.
Quora Link: https://qr.ae/pNKeZ4