The pros and cons of employee referral programs

We’ve taken a look into the ways we should be inspiring our employees to become actively involved in an employee referral program and why. We’ve also discussed many of the benefits of employee referral programs.

However, all that glitters isn’t always gold. To make sure none of our readers barge headlong into the process without being aware of the negative consequences of employee referrals, we’re about to address a few of those too.

The pros

There are a whole host of reasons why we should take our employees’ referrals seriously. Many of those reasons have proven statistics to back them up, so we’d be fools to think that there isn’t merit in the method:

  • Faster hiring times
  • Cost-effective
  • Improved employee retention
  • A steady source of qualified candidates
  • More access to passive and diverse candidates
  • High conversion rates
  • Better fits for your business culture
  • Your existing employees become your biggest brand advocates

All of these positives are well worth the effort and should outline just why you should be engaging in a referral program. But, before you get carried away with what a perfect system it appears to be, let’s look at a few of the ways it can all go wrong.

The cons

It can change the dynamic of employee relationships

When a new team member comes via a recommendation of another employee, there is potential that your other staff could see it as favoritism. There could even be jealousy if your referral program leaves the referrer with a healthy bonus or alternative reward.

Humans can be incredibly sensitive even at the best of times, and to keep them working at their optimum level, you need to manage any ill-feeling or conflict very carefully. Integration of new staff resulting from a referral needs handling with a different type of sensitivity.

On the flip side, either the referred employee or the referrer may also feel uncomfortable giving or taking commands from each other, once they’ve started working together. You can’t be sure exactly how they’ll perform together unless they’ve worked in a team before. Personal relationships can soon impact professional ones, creating much harder to resolve situations.

Can new staff with personal connections be put to work in different departments or teams, to protect other members from dealing with any of the above issues? It could be a great way to keep everyone happy during a new member’s integration.

You could be missing out on a preferable, better-qualified applicant

Just because employee referral programs create a range of real advantages when you’re headhunting new staff, it doesn’t mean that there aren’t still plenty of great candidates available via more traditional means.

Advertising on industry-specific job boards, or seeing what an agency has on offer, can still provide exemplary employees. However you choose to expand your team, you should always consider your available avenues. You can never know for sure where your next superstar is going to come from.

Interview everyone. Read all references. Take everything into consideration before making your final choice. Your business’s performance and constitution are riding on it, after all.

It can create cliques and segregation within teams

If a new acquisition is going to be working directly with the employee that referred them, there could be a likelihood of the pair forming a strong alliance based on their personal relationship. If that relationship becomes too insular, it can limit the amount of input delivered by existing team members.

It’s essential to regulate how new candidates are introduced into your operation. As much as it can strengthen performance between two highly compatible workers, you don’t want to affect the good work delivered by partnerships that already exist.

Your other employees may feel discriminated against or undervalued

If an employee feels that they were overlooked for a promotion, it can result in several issues. In situations where an employee referral won the position, it can create further problems than if the role had been advertised and awarded through more traditional processes.

Feelings of discrimination and being undervalued can have a significant impact on your staff. They could easily bear a grudge, looking to another company to fulfill the role they just missed out on.

If you’re going to offer an internal position to an outsider, make sure you interview all suitable existing employee candidates and take the time to explain why they didn’t win the role this time.

The candidate might not be the package your employee suggests they are

If a referring employee is solely doing a friend a favor with little respect for the business, you could be getting something very different from what you bargained for.

It’s easy to upsell a possible candidate that could let everyone down the minute they’re expected to perform. Cases such as this could be likely to happen if a referral program’s bonus is sought after. It creates a demand to find any possible applicant that overpowers the referrer’s desire to stay true to the business.

Make sure you’re getting exactly what you think you are. Accepting a referral is a great lead for a business, but ultimately, it should be the interview process that dictates whether a candidate is the best fit for the job.

You could lose more than just one of your team in the case of a dispute

One of the more common drawbacks of employee referrals is that you could lose two staff for the price of one. If a dispute occurs and the referred-in employee is terminated, you could end up losing the referring employee as well. Personal relationships stand for a great deal, and they could feel a duty to each other as part of a team.

Depending on how many of your current team were referred in by any employee, you could even be in danger of losing a large section of your workforce.

To avoid such a catastrophe, it’s essential that any dispute is managed with diplomacy and tact. 

Pros vs. cons: and the winner is…

We believe that the benefits of employee referral programs are so overwhelmingly positive that they’re something to take advantage of rather than shy away from. But, that doesn’t mean wading in blindly and taking every existing employee on their word.

Employee referrals can come with their drawbacks, as we’ve shown. It’s up to you to make sure your system can prevent them from happening, or limit the damage they could create before they get too far out of hand.

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