More than a third of U.S. workers landed their current job via an employee referral. In a tight talent market, it’s tempting for organizations to rely even more heavily on employee referrals to fill open positions, but a new study from PayScale shows that doing so could lead to pay inequities and a less-diverse workforce.
Between April and August 2017, PayScale asked approximately 53,000 U.S. workers how they came to apply to their current job and if they had landed their job based on an employee referral. Other demographic, job, and employer details were also collected as part of the survey.
Holding everything else constant, from job title to industry to location, female and minority applicants were much less likely to report receiving an employee referral than their white male counterparts. More specifically, white women were 12% less likely to receive a referral, men of color were 26% less likely and women of color were 35% less likely.
The data also show that the candidate’s relationship to the source of the employee referral impacts salary offers, and that other job application methods might lead to higher pay. The most common type of employee referral was from a family member or close friend (41% of employees who received a referral), but we found that salaries ended up being $1,600 lower for these individuals compared to those without a referral. The most valuable type was from a former coworker, colleague, or client, but the positive salary impact differed based on the gender of the candidate. Men received offers that were $8,200 more than the typical offer, while the bump for women was much smaller at $3,700.
Further, while employee referrals led to higher median salaries than for candidates who said they “knew about the company and searched for jobs” or applied through an online career website, the highest pay went to candidates who said they came in through a recruiter. The second highest pay reported was for candidates who connected to a job through their school’s career center or an alumni network.
These findings paint a complicated and often problematic picture about referrals. But it’s unlikely that organizations are going to stop using them. Besides lowering recruitment costs, companies love referrals because they can lead to higher employee engagement. The PayScale study found that candidates referred by an employee, regardless of the candidate-employee relationship, reported higher levels of employer satisfaction and better relationships with their managers. They also reported lower intent to leave the organization to seek a new job in the next six months.
Perhaps unsurprisingly, in a separate PayScale study of more than 7,000 employers, we found that 42% of U.S. organizations pay out employee referral bonuses. The prevalence of employee referral bonus programs grew with organization size, with 54% of enterprise organizations (5,000+ employees) reporting their use. The tech industry, which has been under fire for its lack of diversity, reported the highest percentage of organizations utilizing employee referral bonuses of any other industry, at 58%.
The employee referral system clearly has both advantages and disadvantages. So, how do we keep what’s great about employee referrals while ensuring they don’t lead to a less diverse employee population and potential pay inequities?
Gather data on talent sourcing. Candidates can land in an organization’s talent pool in a variety of ways, but if you’re not already tracking your talent channels, that’s the first thing to dive into. Depending on the size of your organization, it may also make sense to break that down to understand how those channels differ demographically. If, indeed, employee-referred candidates tend to be white men, how can your other channels be used to attract more women and people of color? Additionally, take a close look at what percentage each channel accounts for in terms of your organization’s job candidates. Is any channel tilting the balance in favor of a particular demographic, especially one already in the majority within your organization?
Don’t give employee-referred candidates special treatment. We’ve established that white men receive employee referrals more often than any other demographic group. What’s also true is that some organizations give candidates who were referred by another employee preferential treatment. They may float them to the top of the pile when presenting candidates to hiring managers. They may not require them to jump through as many hoops from a hiring perspective, whether that means fewer interviews or not requiring a screening test. If every candidate, regardless of how they were sourced, isn’t evaluated in the same way, you may be perpetuating a less-diverse organization.
Restructure referral bonus programs to reward diverse referrals. Studies have shown that diverse teams lead to better business results, prompting many organizations to prioritize workforce diversification. If diversity is a focus, and you’re already incenting employees to refer candidates for open positions, consider paying more for candidates who are currently underrepresented in your employee population. Intel is one organization that is doing just that by paying twice as much for diverse referrals.
Some people may be concerned about the legal implications of this type of incentive, but they shouldn’t be. In fact, they should be worried about the opposite: the EEOC prohibits employers from using neutral employment policies that have a disproportionately negative effect on applicants of a protected class. It’s clear that employee referral programs disproportionately benefit white men. Plenty of white men will naturally make it into the candidate pool if white men are in the majority within your organization already. The question is how you can ensure the pool of candidates you’re considering for any open position is more representative of the broader working population. That may mean incenting employees to reach beyond their immediate network when making referral recommendations.
Conduct a pay equity analysis of new hires by source. Many organizations already look closely at pay equity by gender, race, ethnicity, and other protected classes. But have you looked at pay equity for new hires by talent sourcing channel? Given that how a candidate applies for a role can impact pay, this could certainly lead to pay inequities within your organization down the road. It could also account for some pay inequities by gender or race/ethnicity if certain talent sourcing channels tend to favor white men, as we’ve found with employee referrals. Doing this type of analysis for new hires may help you correct some inequities that could end up revealing themselves much later.
from HBR.org http://ift.tt/2FF7PJ6
