Don't Break Referral Hiring
A recent post on the First Round Capital blog promoted “referral hiring” as the go-to form of talent sourcing for young companies and provided ammunition for generating greater numbers of referrals from existing employees.
It seemed obvious while reading this post that using the suggested tactics would improve raw referral numbers, but degrade referral quality. There was little mention of the introduction of misaligned incentives and the downside risks associated with those new incentives.
Comments on the post from the popular startup community, Hacker News, seemed to indicate that many employees have an intuitive grasp of the risks and incentive problems that come with trying to juice referral-based candidate lead generation — more so, perhaps, than employers who are narrowly focused on trying maximize their referral numbers.
Today, with the help of comments from the Hacker News community on the aforementioned FRC post, we’ll attempt to present a fuller picture of referral hiring.
The Importance of Incentive-less Referrals
Offering a referral bonus to employees for referring friends who get hired is common practice, but is it necessary?
By offering bonuses in this way, companies essentially turn their employees into part-time contingency recruiters who now face the same bad incentives of their full-time counterparts.
With $5,000 or more potentially on the line, a given employee is likely to be more lenient with their referral standards than if there were no financial reward at stake. Meanwhile, employees who truly love their jobs naturally gush about work and try to get their talented friends involved.
In the Hacker News discussion, user Conorgil145 made a comment to this exact effect, “If I love my job, then you better believe that all of my developer friends are going to hear about it until I am blue in the face.”
To drive a significant volume of meaningful referrals, focus on a feedback loop with your employees that address their root concerns — the reasons that they’re not already gushing to their talented friends about how much they love their company. If you want your employees to gush to their friends, ask them directly, “What can we do as a company to improve the likelihood of you recommending us to those in your network as a place to work?”
Requesting referrals from employees who have fundamental concerns about their workplace lowers the likelihood of them referring their most talented friends. Instead, you’ likely to hear about their buddy who “really needs a job”.
Once you’ve nipped the real issues in the bud, keep your hiring needs in the forefront of employees’ minds by mentioning them at regular intervals. Make your workplace somewhere people really do want to work, and the word of mouth will take care of itself.
If you insist on using referral bonuses, consider tying them to the long-term success of the hire instead of positioning them as a quick buck. Fast cash actually lowers the standard of who your employees will refer. Try, for example, referrals bonuses (cash or equity) that vest based on the hire’s performance over the first year.
Your Hiring Process (is a Problem)
Companies don’t like to admit it, but many have hiring processes that treat candidates who are early in the hiring funnel as expendable, interchangeable, and disposable. This incentivizes employees to not refer their friends for fear of mistreatment.
“What's really annoying is when you try to bring in talented engineers from your network, and your company drops the ball: either by not getting in touch with them, or low-balling them, or refusing decent equity.
If I'm referring somebody from my network to you, I want to make sure you treat them well and with promptness--disrespecting them is a sign of disrespect to me as well, and makes me look like an ass to them.”
It doesn’t take much to turn a good candidate off with your hiring process. Slow contact at important junctures, overly-vague explanations of how the hiring process works, what to expect from a given interviewer, and poor transparency into decision making criteria are all big annoyances for candidates (though most companies consider them to be a given in hiring).
In a world where “hire the best, no questions” is considered foundational behavior for success, isn’t your hiring process your most important product? What if the only product your company produced was your hiring process? How would it change from your approach today?
First impressions don’t fade easily. You may get a candidate who has been through a poor hiring process to accept an offer, but they’ll remember how they were treated. Even if they chalk their experience up to chance, they still may still be concerned about subjecting their friends to the same treatment.
The Hacker News crowd expounds on the troubles with the middle of the hiring funnel, and the resulting effects:
“My sense of it is that the valley believes recruiting to be a ‘top of the funnel’ problem. My experience says that it isn't. My hypothesis is that the inefficiency is in qualifying candidates (deeper in the funnel), and that if you can fix that problem, the top of the funnel can sort itself out without much effort.”
“I've seen too many examples of poor interviewing process, too many bad hires made, and too many good hires passed over to not put most of the onus on the middle of the funnel. Most interviewers are just not good at understanding the fragility of the process, or in having sufficient empathy to understand the difficulty of getting good data on a candidate.”
“By putting all of my contacts in the hands of the HR dept I no longer have any control over how or when the company contacts them. That company can easily break the trust I have with my contacts. I wouldn't be comfortable doing that, referral bonus or no referral bonus.”
Referral hiring can seem like a panacea, especially compared to low conversion rates from alternatives, but that attitude masks the real problem: you’re likely bad at evaluating cold leads.
Like focusing on candidates from top-tier schools, seeking out friends of existing employees is nothing more than a proxy for independently-determined quality. This approach leaves you with an insulated pool of candidates, and a statistical evaluation will tell you that focusing too narrowly on referrals virtually assures that you’re missing out on the best talent in the market.
Tptacek points out the dangers here:
“Network hiring unavoidably personalizes the hiring process: candidates come in the door with sponsors. It's hard to hire objectively, staying as close to apple-apples as possible, when your candidates are friends of employees who have significant bonuses riding on the selection.”
If You Want More Referrals, Align Incentives For Success
Consider paying for your employees’ contact lists, not the hires that come from them. By doing so, you put the incentive to conduct a high-quality and thorough interview process on the people doing the hiring. Traditional recruiting fee structures are broken and standard employee referral fees are an equally broken extension of that model.
Poorly-aligned incentives are ultimately bad for you, the company, even though they look like they reduce risk in the short term. A better, more efficient hiring funnel will provide outsized returns over many, many hires, and aligning incentives in candidate sourcing is the best thing you can do to jumpstart the necessary change.
Right now companies are only asking to mine your LinkedIn and Facebook connections. But what’s next? Does anyone want to connect their Snapchat account? Soon they’ll want family trees and the posts from your Secret account.
From edandersen on the subject,
“My personal network is not yours to ‘mine’. If an HR person at my company contacts a friend of mine to pitch a job at the company I work at, trying to use my name as an ‘in’, that is seriously unprofessional.”
“I'm not going to want to sit down with you and let you chew through my social networks for recruiting leads.”
Well-executed referral hiring has exceptional value, but not all referral hiring is well-executed. Incentivized referrals have inherent risk, and pressing current employees to offer up a marginal referral potentially alienates the referrer and likely generates a worse-fitting candidate than one who is organically recommended.
If you’d like to augment your current candidate acquisition efforts with high-quality, non-referral-based leads, check out Mighty Spring. We provide a curated short-list of candidates who are both qualified for, and interested in, your company’s open job.
TL;DR: Optimize your hiring process and candidate lead generation strategy end-to-end with referrals as one element. Consider ways to drive referrals that are not based in financial incentives. If you must use financial incentives, align them with long-term organizational goals. Use Mighty Spring as another way to see great candidates :)
Lumen Sivitz is a former technical recruiter and CEO of Mighty Spring, the easiest way to find startup opportunities. He prefers his pie from Una Pizza Napoletana and his popsicles directly from the freezer. You can follow him on Twitter @lumen.
