Sometimes it's easier on an employer, and the HR department, to fill a position with a candidate referred by a current employee: Someone on the inside has vouched for the candidate's work and interpersonal skills and can say if the candidate would be a good fit for the company.
Yet there is, according to PayScale, an "ugly side to referrals."
First, referrals benefit white men more than any other demographic group, according to recent research from the compensation data and software provider. Second, those referred by friends and relatives tend to earn less at their new job and be less engaged than those referred by business associates. And finally, a man referred by a business associate can expect, on average, an $8,200 salary increase, while a woman can expect a $3,700 increase.
From April 24 to Aug. 25, 2017, PayScale collected demographic, salary and referral information from 53,200 respondents, then analyzed how referrals affected pay and engagement.
Referrals from Friends May Lead to Lower Pay
About 40 percent of all job interviews come from some sort of a referral, PayScale noted, adding that referrals significantly increase the likelihood of receiving a job offer.
So how will that referral affect your pay?
When PayScale grouped workers by the source of their referral, it found that referrals from friends and relatives can have a negative impact on pay.
When data were controlled for variables such as industry, occupation, location and other factors, those referred by friends and relatives earned, on average, $1,600 less a year than those referred by business associates—people you know directly in a professional setting—or "extended networks"—those you know by networking, such as at a party, on the golf course or at the gym.
"It seems while who you know certainly impacts your chances of landing a job, a referral by
someone who you know only in a personal context could have a negative impact on your earnings," the research authors wrote. "Referrals by business contacts, on the other hand, tend to increase pay."
This could be because people referred by friends or relatives are already sold on working at the organization and are not in a strong bargaining position when it comes to pay, said PayScale Vice President Lydia Frank.
"Receiving a referral from someone that can vouch for a candidate's work versus a close friend or family member who is less likely to have knowledge of their loved one's potential impact in a professional setting clearly impacts the value a hiring manager places on the referral," Frank said.
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PayScale also found that, while satisfaction rates were higher for people who received a referral than for those who didn't, employees referred by friends or relatives were less engaged (53 percent) than those who secured referrals from business associates (60 percent).
Many employees referred by friends or relatives don't end up working directly with the people they knew before taking their job—in part because doing so could pose a conflict of interest, said Tacy M. Byham, Ph.D., CEO of DDI, a Bridgeville, Pa.-based company that helps organizations with hiring, promotions and workforce development.
"Since they may be working in a completely different part of the company, the referral may not have a major impact on their engagement rate," Byham said.
In addition, she said, workers may feel obligated to recommend relatives or friends for positions if, for instance, the friend or relative isn't happy at his or her current job or is out of a job. The employee making the referral may not have thought carefully about how well the friend or relative was suited to a job or a company.
Referrals and Gender and Minority Disparities
When it comes to pay, even business contact referrals don't affect everyone equally. After accounting for industry, experience, job type, location and other variables, PayScale found that, on average, a man can expect more than double the salary increase that a woman will get.
Women of any race and men of color 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, PayScale found.
To put it another way, out of 100 referred employees, 44 will tend to be white men, 22 will be white women, 18 will be men of color and 16 will be women of color, the research authors pointed out. By comparison, according to the Bureau of Labor Statistics, white men represent only 34 percent of the U.S. labor market, which means white men are 129 percent more likely to be in a pool of 100 referred employees than what demographics suggest they should be.
Companies may get more white-men referrals because white men—as a demographic—have been networking professionally longer than women and people of color, have more experience with it, and may even be more confident with it, said Chris Martin, lead data analyst at PayScale.
"Networking and leveraging your network into a referral is a game that benefits white men," Martin said. "It may be that they are more confident when networking or asking for a referral, or that white men's network of peers is more likely to be participating in the labor market than the peer groups for women and people of color."
And when they do make referrals, Byham said, white men are more likely to refer other white men.
"It's no mystery that people tend to network with people like themselves," she said. "White men tend to network with other white men, whether they're college buddies, play on the same softball team or met on the golf course. As a result, those are the people that most often come to mind when referrals are needed to fill a position. It's not necessarily malicious, but the gender divide of networking opportunities continues to keep diversity low at top leadership levels."
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