There are several inbuilt advantages in pursuing this practice, though there is a downside also. The trick is to devise a system that reaps the advantages but minimises the risks.
The process is simple enough. If you know someone who fits the requirement for a particular position in your company, you refer him to the company. If the person is found suitable and gets hired, you earn a bonus.
The advantages for the firm in this are multiple: The onus for making the right recruitment is partially shared by its employees, who are given a sense of ownership in the process; and hiring costs drop because companies need not spread the net wide.
Simultaneously, the downside is reduced, as an employee is unlikely to refer someone who will not fit the bill and run down his reputation in the company.
The big downside is that since employees get a chance to bring in people they know, there is a risk of a negative-minded group getting embedded in a company.
In some instances of fraud in BPO firms, made possible by a nexus among criminally-minded employees, the referral system was seen as a root cause.
Ashutosh Sinha, senior manager (recruitment) at business and technology consultancy Sapient Corporation India, warns that a company's referral programme "should not be allowed to take on a life of its own, but must be under control at all times."
His own rule of thumb is that employees coming in through this route must not account for more than 50 per cent of total staff, "because we don't want too many clones of existing employees."
At Aditi Technologies, a software and product services firm, over 50 per cent of the hiring is through referrals.
Says Sreenivas Chakravarthy, vice-president (people department), "Referral as a talent source has been in existence for a long time. However, corporates have started maximising this source because of the guarantee of good quality hires resulting from some inbuilt pre-screening."
Referrals are becoming popular among employers as the job market gets tighter and finding the right people to fill vacant slots quickly becomes a key corporate objective linked to the bottomline.
Additionally, says Chakravarthy, this system is a good satisfaction index for the company. More hires through referrals indicates that people are satisfied with their roles in the company and are willing to refer it to their friends.
While this system brings in more money to employees and ensures better-quality hires, the hires in turn have a feeling of comfort, since they know someone in the organisation.
Says Arul Rajkumar, national HR manager at TNT India, the logistics player: "TNT started the employee referral scheme after the launch of its domestic business in February this year. The scheme gained popularity as the employees knew who fit best into the organisation." Hence, "they refer the right people."
All vacancies are open for referral in TNT, and 12 per cent of the company's needs are met through this method, adds Rajkumar. But referred candidates go through the same stringent selection procedure as other candidates. If the referred candidate is selected, the referring employee is awarded a gift voucher.
Sinha of Sapient gets 1,200 referrals a week. But, he says, "only 50 to 60 get hired," after clearing stringent background checks. Even so, fully 48 per cent of the company's new hires in the first half of the current calendar year have come in through this route- 30 per cent at the entry level, 50-60 per cent at middle level and the remainder at senior level.
Sapient's referral programme, Sinha explains, has been strengthened in the last three years, during which the company has scaled up from fewer than 400 employees to 2,000.
At industrial gases producer Praxair, which has 30 per cent of its employees coming in through employee referrals, these are a formal part of its hiring strategy. Vacancies are put up on the company database to be viewed by all employees.
Employees refer candidates, who then go through the regular screening process. Once a candidate is selected and joins, the employee is eligible for the referral bonus, whose amount depends on the seniority of the selected candidate.
At Sapient, the rewards consist of gizmos such as iPods and DVDs, as well as a 'credit' at performance appraisal time. But the reverse can happen as well. A HR consultant says that the quality of referrals has fallen over the years, and one software company asks referrors to justify their recommendations.
If background checks reveal that the progress of a referred candidate has been unsatisfactory in his current or past employment, it is a black mark against the referror.