Employee Referrals and Workplace Diversity: Strategies for HR

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. 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 while still maintaining 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 develop a strong relationship with management 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 examines research findings, applicable theory, and a case example to illustrate why referral-referee relationships matter when it comes to ensuring equitability in the workplace, and why search strategies such as deliberately asking for diverse referrals—or even for leads instead of referrals—can help reduce the risk of non-diverse hires.

Theoretical Framework

Agency theory provides one 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 principal-agent relationship. The problem is that agency relationships cannot be counted on to be entirely prejudice-free, because people always have some degree of self-interest, conflict of interest, or ulterior motive in what they do.

Some examples of how agency theory plays out in the real world can be seen in the real estate industry, where the realtor acts as agent for the principal—the home buyer or seller. The realtor has a degree of self-interest in the transaction because he earns a commission on every sale, yet is supposed to act in the best interests of the principal. In a workplace setting, a referring source may try to refer someone close to him as a favor to a friend or family member, thereby acting as agent to a principal who is that friend or family member rather than the organization. HR must be mindful of the fact that ulterior motives or bias may influence the employee's decision to refer that person, and the referral may not actually be in the best interests of the workplace in terms of establishing diversity. This is why understanding agency theory thoroughly—including the limitations of the agent-principal relationship—is important for HR.

There are ways for trust to be cultivated, but it can never be absolute. Eisenhardt (1989) recommends that some oversight must be put in place so that the agent knows his behavior is being monitored. However, in terms of application to HR, heavy policing measures may be impractical and harmful to morale. If an employee feels that his job security is at risk, he may become reluctant to make referrals at all. Thus, HR has to be strategic in moderating the effect of self-interest in employee referrals. One proposition offered 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). From an HR perspective, this means that HR can take the steps suggested by Frank (2018)—discussed more fully in the next section—to check and verify what the referring employee reports. Without a culture that promotes accountability and fosters a sense of duty, however, agency theory cannot fully explain why trust breaks down. Culture therefore matters a great deal in this matter.

Maslow's hierarchy of needs model can also be applied to help ensure that employees have their needs met and are self-actualized individuals. The idea behind Maslow's theory is that human motivation improves as the hierarchy of basic human needs is fulfilled. Maslow showed that people cannot become self-actualizing unless they are fulfilled in other, more fundamental ways. At the base of the hierarchy of needs pyramid are physiological needs: food, water, fresh air, shelter, and clothing. After the basic physiological needs are met, the need for safety must be satisfied—including personal security, employment, health care access, and security of property. Next comes the need for love and belonging, encompassing friendship, fellowship, social connectivity, family, and intimacy.

Once the need for love and belonging is fulfilled, the individual requires the development of esteem, which includes self-respect, status, recognition, and the freedom to pursue and develop one's skills and talents. As the person fulfills esteem needs, he becomes self-actualized and able to reach his full potential: he is intrinsically motivated to perform, driven to be the best possible version of himself, and strives to become his ideal self.

To apply Maslow's model to the HR issue of using employee referrals while maintaining diversity, HR should assess what needs employees still need to have satisfied. If workers' physiological, safety, love, and esteem needs are all met, HR can reasonably expect those workers to be self-actualized—that is, eager to perform and to assist HR in identifying diverse candidates out of an intrinsic desire to do good work for the company. The more self-actualized an employee is, the more likely he will be to act as a good agent for the organization and help HR identify diverse candidates who will truly meet the needs of the company.

Conclusion

The central research question of this paper was: How can HR use employee referrals to increase the workforce while still maintaining diversity within the organization?

The research findings and case study demonstrated that HR can use employee referrals to promote diversity by taking the following steps:

These steps would enable HR to use referrals to improve the hiring of diverse candidates by reducing the risk that bias affects the identification and selection of candidates, and by aligning employees more closely with the needs and priorities of the organization. Directly asking employees for diverse referrals gives HR an added strategy for identifying candidates suited to the workplace culture and reduces the need to chase leads or analyze the nature of every referring relationship. In the end, the organization's focus should be on deliberate, transparent action—communicating a clear message about the values that will be central to its mission as it relates to diversity promotion.

To assist in reaching these goals, HR should be aware of the benefits of applying Maslow's hierarchy of needs and the limitations of agency theory. Two key points emerge. First, HR is asking employees to act as agents in referring appropriate candidates. Though agents are meant to act on behalf of the principal—in this case the company—conflicts of interest can arise when an agent's loyalty to a friend or family member supersedes his loyalty to the organization. The agent may be inclined to recommend someone he likes who is not a good fit for the company's diversity needs. HR should recognize this risk and take steps to mitigate it.

One effective mitigation is to apply Maslow's hierarchy of needs model. If HR wants employees to provide excellent referrals, it must recognize that workers have needs that must be met before they are willing or able to perform in the way HR expects. If workers lack a sense of belonging or esteem, HR must find ways to help them feel appreciated, connected, and respected—through recognition for work well done, or through social gatherings that foster community. The goal is to help move workers up the pyramid toward self-actualization. Once self-actualized, employees will be more willing and able to facilitate HR's requests for appropriate referrals, because they will be focused on performing for the good of the company and acting as effective agents for the principal.

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