Referrals from current employees are the most common way companies find new hires, according to several surveys. But that doesn’t mean they always provide the most qualified candidates.

Companies trust their referral programs for good reasons — they’re cost effective and generally produce successful employees who stick around. But relying too heavily on referrals can lead to several problems, such as:

1. Discrimination charges — When employers over-rely on referrals, the pool of applicants can get very homogeneous, excluding members of some protected classes. In one recent case, Wal-Mart lost a court fight based on allegations that its referral process screened out African-American truck drivers.
2. No variety — Beyond just avoiding lawsuits, companies benefit when workers come from different backgrounds and experiences. Current employees are most likely to refer applicants who are just like them — which is not always the best thing.
3. Cliques — When referrals are frequently used, companies get big groups of employees who already know each other or have something else in common — for example, they may all have come from the same previous employer or graduated from the same college. That can make it easier for employees to form cliques, which might create friction with other co-workers.
4. Flood of low-quality applicants — Of course, employees aren’t always going to make a referral just because they know someone who’s a perfect fit. It could be to do a friend a favor, or for the bonus if one is offered. Problems can arise when managers give referrals too much weight in the decision-making process.

What HR can do

Does that mean employers should eliminate their referral programs? Of course not. But HR should take some steps to make sure referrals are really bringing in the best hires:

• Make sure managers understand this simple rule: Referrals help bring candidates into the applicant pool — they shouldn’t replace interviews and other tools used to pick the best candidate.
• Let employees know their reputations will be affected (positively or negatively) by the candidates they refer. That’ll help them screen their referrals even more closely.
• Don’t treat every job the same — some are easier to find applicants for than others. A targeted approach is better — the reward should be higher when finding a candidate for a tough-to-fill position.

And, of course, referrals should be used in conjunction with other recruiting strategies — not as a replacement.

Does your company use referrals to find new hires? How do you make sure the program is successful? Let us know in the comments section below.

Tags: discrimination, diversity, pitfalls of referral programs