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The Boston Globe

New risks seen in a favorite hiring practice

Study links success of referrals to their recommenders

By Alan R. Earls, Globe Correspondent, 1/8/2006


'When a worker is hired using a referral program, that employee becomes linked and even dependent upon other workers.' Emilio J. Castilla, MIT professor.

For many companies, hiring new workers referred to them by their own employees and others has been a well-tested practice for filling jobs.

But now, a management professor at the Massachusetts Institute of Technology's has found a side effect to the referral process that paints a more complex picture. New hires, it seems, aren't just corporate clones they are individuals whose success is often linked to the person inside the company who referred them in the first place.

The research findings by Emilio J. Castilla, a professor at MIT's Sloan School who specializes in strategic human resource management, show that individuals who were hired through referrals were measurably more productive than other new hires, at least for the first few months of employment.

But he also found instances when their performance slipped. If the person who provided the referral leaves the company, the job performance of the new hire began to slide.

Moreover, the new hire is more likely to leave the company after his or her mentor or contact leaves, too. In some cases, the new worker followed the referrer to another company.

''Referral programs have been very successful in recruiting talent into organizations, especially in sectors where the labor market is tight,'' said Castilla, whose work was published in the March 2005 issue of the American Journal of Sociology.

However, he noted, while firms often turn to their employees to help the company fill immediate personnel needs, such programs will not produce optimal results without good follow-up management.

''When you hire someone who is referred, you are bringing part of the worker's social network into your company,'' said Castilla. ''Employers often forget that when a worker is hired using a referral program, that employee becomes linked and even dependent upon other workers in the organization.''

Still, despite Castilla's warning, human resource specialists and employees continue to value referral programs.

Cynthia Boab, now general manager of New England Journal of Medicine Online, is a case in point. She was referred into the position by Rose Strand a friend of a friend about two years ago and counts herself happy for the connection and pleased with her new position and a subsequent promotion.

''For me, the referral from Rose made for a much smoother process,'' she said. ''Knowing someone inside removes some of the mystery and gives you a feel for the organization through their experiences.''

For Boab, that meant feeling better prepared for the interview and more attuned to the expectations of the organization.

''I would assume that for the employer, if they like the person doing the referring, it probably also gives them more confidence in the process,'' she added.

To, Strand, who is director of publication service support at the New England Journal of Medicine, referring Boab seemed completely natural.

''We knew of each other through a friend,'' she explained. And while the organization does offer a financial reward, Strand said money wasn't the incentive. ''For me the point was to make a good match for the organization and the individual,'' she said.

Indeed, for organizations, referrals remain a favorite method of recruiting. James Walsh, the president of the Boston 1800GotJunk franchise, a cleaning and junk removal service, said, ''Almost every one of our current employees can be traced back to one person.''

While the program isn't formalized, Walsh said ''the system works because like-minded people are friends, and when you hire one, it's easy to hire another.''

But that can be a double-edged sword, he admitted. ''In one instance I noticed I started having problems with poor attendance and work habits, and I realized that all the problem people were referred by the same person,'' he added.

Doug Miller, vice president of marketing at Authoria Inc., a Needham developer of human resources software, said that for many companies, ''referrals are among the top two or three ?sources in terms of producing quality job candidates.''

Just as important, Miller said, the referral process leverages and even strengthens an organization's informal networks, through second and third degrees of separation. That can aid everything from community relations to marketing to future recruiting.

Still, Miller acknowledged Castilla's findings probably reflect a potential pitfall for referrals. In fact, ''Good managers are beginning to understand the need to manage social relationships,'' Castilla said.

For instance, Castilla said, referrers are motivated to informally help train and mentor the new employees they refer. ''We all want our friends to do well in the jobs for which we have referred them,'' he said.

Employers, though, must be aware that the experience of the new employee might become less pleasant after the referrer leaves, making the worker less productive.

Still worse, the referring employee may end up taking their friends with them to the next organization when they leave.

So, Castilla said, some firms are changing their bonus systems for referrals to reward long-term success. Instead of a single payment, for example, they are structuring referral bonuses to be distributed over time.

One model divides the bonus into thirds, the first of which is paid at the time of the recruit's interview, the next third when the person is hired, and the final portion paid only after the new hire stays for a certain time.

Too often, he said, companies just worry about getting the people hired in the first place rather than thinking about the long-term implications. However, Castilla added, ''Well-managed referral programs can increase productivity and reduce turnover.''


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