Over a third of all workers received some type of employee referral for their current job, and this number is probably only going up.

But do referrals create the kind of workforce companies are seeking?

Our new report documents the extent to which referrals are shaping the workplace, how people get referred and how referrals vary by industry.

Referrals can indeed lead to more engaged employees, but the size of this effect depends on the source of the referral.

Ultimately, we caution that, while beneficial in many ways, referrals are not a total win for companies. There is a down side, and organizations should take proactive steps to mitigate the risk of negative consequences.


The Job Referrals Study

Between April 24, 2017 and August 25, 2017, PayScale asked 53,000 workers whether they received a referral. Respondents also provided demographic information and details on their current position. Since respondents are not required to answer to advance in the survey, the number of responses vary depending on how we cross-cut the data.

The most common type of employee referral was from a family member or close friend (41 percent of employees who received a referral), followed by a business contact (32 percent). Leveraging extended personal networks (i.e. a friend of a friend) was less common, but was still used by 22 percent of all referred employees. Targeting current employees to seek a referral was the least common, but 5 percent of referred workers managed to work these cold connections into jobs.


The Harsh Truth of Referrals

Referrals benefit white men more than any other demographic group. Our research shows that, holding all else constant, female and minority applicants are much less likely to receive referrals than their white male counterparts: white women are 12 percent less likely; men of color are 26 percent less likely and women of color are 35 percent less likely to receive a referral.

Relying heavily on referrals could hurt your efforts to hire a diverse workforce.


Impact on Engagement

Similar to other research, we find that referred employees are more engaged. They are more likely to report that they are satisfied with their employer and that they have a great relationship with their manager. They are also less likely to say that they intend to leave within six months.

Engagement Varies by
Referral Source

Employees who received a referral from their extended network or from connecting with an employee who works at an employer they are targeting, but they don’t know personally, are the most engaged workers. People who received referrals from a family member or close friend have better engagement outcomes than those who did not receive a referral, but they have notably lower levels of satisfaction with their employer and worse relationships with their managers than the other referral groups.

Employee Engagement by Source of Referral



Variation Among Industries

The construction industry is built on referrals. Not only is the referral rate 5 percentage points higher in the construction sector than in the economy as a whole, it is a full 2 percentage points higher than in the industry with the next highest referral rate. In addition, referrals by family members or close friends are appreciably higher in construction than in any other sector.


Referrals By Industry


Tech companies have been heavily scrutinized for relying on personal connections and referrals in hiring; however, our data show that the use of referrals in tech is in line with most other industries. It falls in the middle of the pack when we look at the percentage of employees who had a referral. Referrals from business contacts as well as from extended networks appear to be slightly higher than average, but overall the tech industry does not differ greatly from the other industries we analyzed.


FIND OUT MORE

Get all the details, implications and suggested action items in the full report.




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