In Hiring, Recruiters Value Referrals

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February 28, 2013 | COMMENTS

Companies such as accounting firm Ernst & Young are increasingly using their own workers to find new hires, which saves time and money but lengthens the odds for job seekers without connections, reports The New York Times.

The trend has been amplified by a tight job market and by employee networks on LinkedIn and Facebook, experts say. Employers now can find candidates more quickly and bypass reams of applications from job search sites like Monster.com.

At Ernst & Young, employee recommendations now account for 45% of nonentry-level placements at the firm—up from 28% in 2010, with a goal of 50%.

Other large firms have begun offering prizes like iPads and large-screen TVs in addition to traditional cash incentives for employees who refer new hires. One food service company recently released a mobile app so employees can make recommendations from their mobile phones.

Even getting in the door for an interview is becoming more difficult without connections. Referred candidates are twice as likely to land an interview as other applicants, according to a new study from the Federal Reserve Bank of New York. For those who make it to the interview stage, referred candidates have a 40% better chance of being hired than other applicants.

Referral programs carry important benefits for companies. Besides avoiding hefty payouts to recruiters, referred employees are 15% less likely to quit, according to the Federal Reserve study.

Human resource departments have recognized the same pattern. “Our analysis shows referred hires perform better, stay longer, and are quicker to integrate into our teams,” says Larry Nash, a hiring executive with Ernst & Young.

Within the past two years, firms such as Deloitte, Ernst & Young, and Booz Allen have created dedicated teams within their human resource departments to shepherd prospects through the system.

Although employee referrals are a valuable tool, “you have to watch the ultimate long-term result in terms of diversity and skills,” says Mara Swan, executive vice president for global strategy and talent at Manpower Group. Otherwise, she warns, you risk narrowing your workforce.

People tend to recommend people much like themselves, economists say. Just over 63% of employees recommended candidates of the same sex, while 71% favored the same race or ethnicity, according to the Federal Reserve study.

A balanced program includes opportunities for a variety of candidates to enter the hiring process, say experts.