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Employee referrals: the good, the bad and the ugly

Posted on: June 23rd, 2015 by admin No Comments


An employee referral programme (ERP) is an internal recruitment method used by hiring managers to identify potential candidates through their existing employees’ social and professional networks. In return for these introductions, employees are given incentives, usually in monetary form, which is awarded once the new hire has passed their probation period.

Many HR managers swear by ERPs because they are a quick, cost effective way of sourcing ‘good fit’ candidates. However, the method isn’t without its drawbacks, the most severe of which can end in a lawsuit.

Welcome to the good, the bad, and the just plain ugly sides of employee referrals.


  • You’ll gain access to passive candidates

    It’s possible that the people your employees refer will be in employment elsewhere, thus not actively seeking a job. This gives you the opportunity to browse the pool of talent that is not on the market for your competitors, and as they’re already working, you’ll have some indication that they are valuable assets.

  • Referrals may be higher quality

    Existing employees put their own reputation on the line each time they refer a friend hence are likely to closely screen their referrals before you receive their CV.

  • An ERP can cost less than traditional recruitment methods

    Offering a one-off incentive may be cheaper than placing a job advert in the newspaper, hiring a recruiter or booking a place at a job fair. However, it’s important to get the incentive right; offer something too valuable and you may be inundated with unsuitable CVs because your existing employees are desperate for the reward, but offer something meagre, and you may not receive any applications in return.

  • It may be easier to find specialists in your field

    People tend to associate with others in their profession, thus an ERP could enable you to access rare talent that is harder to find through conventional recruitment strategies.


  • Cliques may form within your organisation, breeding resentment amongst your workforce

    Excessive reliance on ERPs can stunt creativity within your organisation, because if certain employees are overly loyal to each other, they’ll be less open to communications with other teams, which could hinder the performance of your business.

    Furthermore, if managers perceive a bias towards employee referrals, they may begin to resent their colleagues and the organisation because job offers appear to be won as favours rather than secured on merit.

  • Restrictive qualification criteria for incentives may produce employee disillusion

    If you’re offering a £1,000 incentive for employee referrals but the qualifying criteria to receive it are too far-fetched, your employees may lose faith in your integrity. This can lead to staff retention problems for an organisation, as workers leave for employers they believe won’t ‘screw them over’.

    What’s more, if you do hire an existing employee’s friend and this new hire doesn’t pass their probation period, your original employee could suffer hurt or embarrassment in the process, creating tension in the workplace.


  • You could be sued for discrimination

    Studies show that employees are more likely to refer candidates of the same sex and ethnicity1, and in the UK, you could be liable if any discrimination occurs during the recruitment process.

  • Your business may be deemed as complicit to mass unemployment

    Young people and the long-term unemployed are likely to have fewer connections than those already in work. Unemployment levels are a festering issue in Britain, and if you favour ERPs over inclusive recruitment techniques, your company could face criticism for contributing to the problem.

  • Your competitors could take action against you for poaching

    Many companies write poaching clauses into their employees’ contacts, and if they have reason to believe that you have induced their employee to breach this contract, they could take you to court.

So there you have it: the good, the bad and the ugly sides of employee referral programmes.

If you can run a successful ERP, not only could you find rare talent at a minimal cost, but you’ll also get a good indication that the culture within your organisation is thriving. After all, what kind of friend puts their friend forward for a miserable job?

However, the cons of running an ERP should not be ignored, as there’s a very real possibility that your employees’ referrals could negatively impact the performance and morale of your current workforce, leading to revenue losses for the business.

Therefore, it’s worth adopting a strategic approach to recruitment – limiting the number of employee referrals you take on – so you can discover talent through other portals to diversify your workforce and expand your business.

Stuck for ideas on how to attract top talent? Click here to discover three of the best (and most unusual) ways to create a buzz around your job openings.

1 Role Point, 2012. The dark side of employee referrals. [Online] Available at: [Accessed 22nd June 2015].

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