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Referral Programs in the Compliance Era

Posted by Colin Kingsbury

Jan 26, 2006 3:10:00 PM

Employee referral programs (and products to drive them) continue to have no end of ink spilled on them as we open 2006. Which is why I really enjoyed Anthony Meaney's contrarian take over at recruiting.com:
Why are referrals touted so highly? Are they really that effective? No they just make our lives easier. Look if I have a choice between hiring someone that is recommended by an employee or going through the whole rigamarole of advertising, reading tons or resumes, spending money on recruiters etc., of course I am going to choose the referral. It is a lot less work.

But is it more effective? Doubtful.
Read the whole thing.

If Anthony is right, the implications of this are significant for companies covered by the OFCCP's recently-adopted rule on handling of "Internet Applicants," which to judge by some commentary, threatens to be the Sarbanes-Oxley of the recruiting world.

Like the best-selling book Freakonomics, Anthony is flipping a rock over and asking us if things are as they seem. My belief is that referrals suffer from decreasing returns to scale, as employees move from referring the one or two truly awesome people they know, then to their cousin Jim who they see every year at Thanksgiving and Christmas, and finally to some guy they met in the bar after golf last weekend.

The new OFCCP rule complicates this by essentially requiring companies to start the process by giving everyone who sends you a resume fair consideration. At the very least you'll need to entertain those other applicants before hiring cousin Jim, and if Anthony's right, that might eliminate much of the benefit of the referral in the first place.

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