SEATTLE – Job-candidate referrals from current employees may help companies hire faster, but a new industry study finds that relying on these suggestions can result in a less diverse workforce for businesses, and sometimes less money for new hires.
A study from Seattle-based PayScale found that men who get a job after being referred by a friend or family member are offered on average $1,600 per year less than those who hear about jobs in other ways.
Friends and family members are the largest source of referrals, the study says, making up about 14 percent of all employee hires.
Referrals from former co-workers or clients lead to about 11 percent of new employees, and are the most lucrative type for candidates. Those referrals usually lead to a bump in pay over people who did not receive a referral, but the amount of money varies widely based on the candidate. Men receive on average $8,200 more, and women get about $3,700 more.
PayScale, which provides compensation data for workers and companies, also looked at a range of diversity issues involving referrals. White men are the most likely to receive referrals for jobs, getting about 44 percent of all referrals, while white women get 22 percent.
The gap widens with candidates of color — men of color get about 18 percent of referrals, and women of color get about 16 percent.
This could be an area of concern especially for technology companies, said PayScale Vice President Lydia Frank, because they already have white-male-dominated workforces, and people's referral networks tend to have largely the same demographics as themselves.
"If you already have that issue going on and you have a fairly large portion of employee referrals coming in, then you're not really solving that diversity issue," she said.
About 35 percent of employees at tech companies got their jobs after receiving a referral, the study found.
Across industries, most jobs are filled by people who do not get referrals, about 66 percent of all jobs, PayScale found. But as companies compete with each other to fill jobs, especially in the heated search for talent in the tech industry, they have offered increasingly attractive benefits to employees who refer friends or former colleagues.
Body-camera company Axon offered a Tesla to qualified employees last year who referred a new hire, and many businesses offer bonuses up to thousands of dollars for successful referrals.
The bright side of referrals is that employees who received them tend to have higher job satisfaction and better relationships with their managers and are less likely to be searching for a new job.