Employee referral is an internal recruitment method employed by organisations to identify potential candidates from their existing employees social networks. An employee referral scheme encourages a company's existing employees to select and recruit the suitable candidates from their social networks. As a reward, the employer typically pays the referring employee a referral bonus. Recruiting candidates using employee referral is widely acknowledged as being the most cost effective and efficient recruitment method to recruit candidates and as such, employers of all sizes, across all industries are trying to increases the volumes they recruit through this channel.
Proponents of employee referral schemes claim the benefits to be an improved candidate quality, ‘fit’, and retention levels, while at the same time delivering a significant reduction in recruitment expenditure.However, there are a number of potential drawbacks. One of the greatest concerns tends to be that relying too heavily on employee referrals could limit diversity in the workplace, with new staff recruited in the likeness of existing employees. But, provided that there is already a diverse workforce in place this ceases to be such an issue.
According to the Chartered Institute of Personnel and Development's 2004 recruitment and retention survey, which showed more than eight out of 10 employers experienced recruitment difficulties, 38% of UK employers used employee referral schemes as a way of finding staff. This was up 4% on the previous year.