How to Use Employee Referrals to Increase Workforce but Still Be Able to Maintain Diversity Within an Organization Research Paper

How to Use Referrals to Identify Diverse Candidates for a Job

Introduction

As Frank (2018) points out, over 33% of all US employees obtained their job with their current organization by way of referral from another employee there. Although employee referrals are an easy, fast and often tempting way to staff positions, the risk is that doing so can lead to a less diverse workplace, with 40% of all referrals tending to be white men (Payscale, 2018). The central question is: How can HR use employee referrals to increase the workforce but still be able to maintain diversity within the organization? The solution is to consider closely the source of the referral. Different relationships between the referring source and the referral have different workplace outcomes. For example, a referral who is a family member or friend of the referring source is less likely to have a great relationship with management at the organization and is more likely to leave the company at some point than is a referral who is simply part of the referring source’s extended personal network (Payscale, 2018). Thus, HR should be careful to look closely at the relationship between the referring source and the referral. HR should also be careful about how it conducts the process of recruiting candidates: instead of asking for referrals, it may better obtain a diverse staff by asking employees for leads (Ranade, 2020). This paper will examine the findings, theory to apply, and a case example to illustrate why referral-referee relationships matter when it comes ensuring equitability in the workplace and why using search strategies like deliberately asking for diverse referrals or even for leads instead of referrals can help reduce the risk of non-diverse hires.

Research Findings

The theory used to assess the findings for this research was agency theory, which is used to explain the relationship between agents and principles. The theory helps one to understand the limitations of this relationship as well as the function of trust within the relationship. For HR to be mindful of the manner in which referrals from employees, if followed blindly, can be detrimental to the workplace it is helpful to understand agency theory.

Theoretical Framework

Agency theory is the theoretical framework used to analyze the findings here. Agency theory in HR posits that “an agency relationship arises whenever one or more individuals, called principals, hire one or more other individuals, called agents, to perform some service and then delegate decision-making authority to the agents” (ProActive Solutions, 2020). Trust is implicitly the most important aspect of the principle-agent relationship. The problem is that agency relationships cannot be counted on to be totally prejudice-free for the simple fact that people always have a degree of self-interest, conflict of interest, or ulterior motives in what they do. Some examples of how agency theory plays out in the real world can best be seen in the real estate industry, where the Realtor acts as agent for the principle—the home buyer or seller. The Realtor has a degree of self-interest in the transaction because he is awarded a commission on every sale. He is supposed to act, however, in the best interests of the agent. In a workplace setting, a referring source may try to refer someone close to him as a favor to a friend or family member and in this regard would be acting as the agent to the principle who would be the friend or family member. But HR has to be mindful of the fact that ulterior motives or bias may impact the decision of the employee to refer this person and it may not actually be in the best interests of the workplace in terms of establishing diversity. This is why understanding agency theory completely and thoroughly, including the limitations of the agent-principle relationship, is important for HR.

There are ways for trust to be had, but it can never be total. It is recommended by Eisenhardt (1989) that some policing must be put in place so that the agent knows that he is being watched as well. However, in terms of application to HR, policing measures may be impractical and bad for morale. If an employee feels that his job security is on the line he may be reluctant to make referrals at are. Thus, HR has to be strategic in its approach to moderating the effect of self-interest in employee referrals. One proposition mentioned by Eisenhardt (1989) is that “when the principal has information to verify agent behavior, the agent is more likely to behave in the interests of the principal” (p. 60). This means, from an HR perspective, that HR can simply take the steps suggested by Frank (2018), which are discussed more fully in the next section. So long as what the agent, in this case the employee, says is checked up on and looked into, HR can ensure that workplace diversity is not put at risk. However, without a culture that promotes accountability and fosters a sense of duty, agency theory cannot be used to explain why the trust is gone. Thus, culture matters a great deal in this matter.

Maslow’s hierarchy of needs model could also be used to help ensure that the workplace employees have their needs met and are self-actualized individuals. The idea behind Malsow’s theory is that human motivation improves as the hierarchy of basic human needs is met. First are the needs of shelter and sustenance, then love and esteem, then the individual can move on to self-actualization, which is the process of being internally or intrinsically motivated—i.e., motivated for the sake of doing a good work. The more self-actualized an employee is, the more likely he will be to act as a good agent for the organization and assist HR in identifying diverse candidates who will meet the needs of the company.

Findings of Literature Research

Frank (2018) shows that HR must determine the relationship between the referring source and the referral so as to better judge whether this is a candidate that will match what the organization is looking for in terms of right fit. Diverse hires are the number one goal, so if the employee is referring a friend or family member, HR will want to assess whether such a candidate would add to the diversity of the workplace before going ahead with the recruitment. One way to reduce the risk of employee referrals of friends or family, is for HR to ask for leads instead of referrals, as Ranade (2020). This way, the employee is less likely to think of a friend or family member he could help to get a job and more likely to try to think of a candidate who would help the organization to reach its goal for diversity. Frank (2018) also notes that restructuring referral bonus programs so that diverse referrals are rewarded more than non-diverse hires will help the organization to meet its aims of diversity.

Eisenhardt (1989) points out that the principal-agent relationship is built upon trust and that there is no way the relationship can work without implicit trust supporting it. However, there have to be precautions and risk reduction strategies in place so that one is not being naïve with respect to the fact that bias and self-interest can and do play a part in that relationship to some degree. The suggestion for a referral program that rewards diverse referrals, as Frank (2018) calls for, is one such way to reduce the risk of the wrong kind of referral from cropping up. An example of how this can work is that given in the proposition of Jensen and Meckling (1976), who state that outcome-based contracts between the principal and the agent can be used to promote the best interests of the principle, which in this case would be the organization. Still, without some system in place in the real world, there is no guarantee that self-interest and conflicts of interest do not arise. That is why in industries like real estate there are penalties that agents face if they are caught abusing the agent-principle relationship. In the workplace, there is less of a system in place for HR to use to ensure that agents are acting in the best interests of the organization. Though agent opportunism is likely to be averted when the agent’s pay is based upon performance for the principle, this is an impractical strategy in HR. In other words, when the agent’s compensation is determined by whether or not the agent succeeded in facilitating the principle, then it is highly unlikely that the agent will try to do anything corrosive or that is self-interested. But not every industry works the same way and HR should be proactive in determining what is working and what is not by having an evaluation system in place, too (Frank, 2018).

Ranade (2020) also concludes that the best way to get diverse referrals is simply to ask for them. This conclusion…