It started as an innocent strategy to help fill open roles. The premise was simple: companies needed more talent, and to get more talent, the goal was to increase the talent pipeline. Legacy talent sourcing channels were not adequate by themselves.
One seemingly good solution was to ask employees to refer their qualified friends or former colleagues to work at their current company. "If Johnny is a rockstar, he likely surrounds himself with rockstar friends, ... right? ... heck, we'll even pay Johnny a healthy off-cycle bonus to incentivize the referrals. What could go wrong?"
What happened often goes unnoticed in organizations, but could be happening at your company now. People refer their friends, old colleagues, and classmates, and the psychological phenomenon and inherent bias that we've been working so hard to tease out of the selection process tends to work its way back into the equation. Those referrals are put through an interview process, ironically being interviewed by others just like them (or, eeek, even the referrer themselves), and soon join the company. As people refer others, those referrals are usually people with similar demographic or socio-economic backgrounds, come from the same schools, and may even be the same gender and race. As the flames of the "need to hire" burn brighter, candidates are funneled through the hiring process so quickly that no one stops to check to ensure that their applicant and candidate pools are from diverse sources. Failing to do so could result in future troubles with inclusion and diversity, including problems with pay equity, gender and race equality, disparity in career advancement opportunities, or even creating unwanted cultures of cliques. To put it more bluntly, if the good-ole-boys are only referring old buddies, then you likely have a diversity and inclusion problem.
Real World Example
A recent client thought their referral program was a strength of their talent acquisition process. "We get qualified, local talent," they celebrated. However, when we looked into their data more, we found large pockets of higher than normal attrition among some groups.
When we dug further, we discovered that those employees were leaving because they felt like they were not in the "IN crowd", didn't feel like they had opportunities for advancement when compared to those peers that came from this referral network, and felt their pay was not as high as someone from that referral base. But the situation seemed worse as we looked deeper: the referrals were coming from one school network that was predominately middle class, white, male, and centered on one particular type of degree. Further, those employed from the referral network were compensated up to 50% higher in base pay when compared to their peers in equal roles and not "in" the network.
Factions
On the surface, it seemed like the referral program was a win for all: the company was able to fill open roles, employees had jobs, and the school source had an added benefit to attending their program. But everyone outside of the program felt isolated, unvalued, and stuck in their career growth. They also tended to stay with the company for only one year, whereas those from the referral network were typically "lifers".
Outside of work, those from the referral network tended to go to social hours and events together. They knew each others' families, attended gatherings as groups, and even exchanged holiday cards with each other. However, those who were not from the network were seldom invited to events. Several social media comments from employees that left the company stated "I don't think they even know my husband's name", and another read "they thought I was single this whole time."
Fractions
Some 70% of the company came from this referral network. But that other 30% had a lot to say about their perceptions and feelings of being left out. In fact, the issue was bad enough that the prospective company that intended to buy our client backed out of the deal altogether due to their desire to manage the risk of their reputation - they didn't want to be known as that kind of employer.
While we were surprised by our findings, it made us realize a new kind of risk that we should investigate as part of our due diligence for deals. So we added it to our playbook and what we found was unsettling - when we looked at clients' referral practices, we often found the same issues time and again. What started as good intentions ended up causing problems in various parts of the orgs. For a few clients, we took it a step further and analyzed the referral bonus payouts. We found that some employees had so many referrals, the total sum of their bonuses from annual referrals outweighed their annual performance incentive bonus. When we followed up with those employees, one of them explained, "I do a little bit of work, but my day is mostly consumed by looking at my network and seeing who I can refer - I get paid more to refer than I do to perform."
The Way Out
Check your sourcing AND hiring channels. It's one thing to ensure you have diverse sources to gather talent, it's another to ensure you are HIRING from diverse sources. If some of your sources aren't working, dig in to find out why.
Analyze your company data for anomalies in attrition, pay, and inclusion. Too often, companies look at overall or functional attrition, but consider slicing and dicing your data to look for patterns you might not be aware of. Consider dissecting your pay info. What employee programs do you offer? Does everyone have access? Does everyone ATTEND? Why/why not? Do you look at social platforms and "listen" to your employees?
If you find problems, actively work to address the issues and communicate the efforts (e.g., normalizing pay, creating inclusive social groups and events, etc) to your employees. Realizing you have a problem is a critical first step, but employees need to know that you know, and that you're going to fix it. This step may save your next gen leaders from walking out the door.
Org Talent Culture can help. We can help you define where to start, analyze your data and information, and help you mitigate your Organizational, Talent, and Culture risks. Those risks are real... and you might not be aware of what is causing them. Org Talent Culture, LLC can help.
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