The elephant in the room: referrals in the hiring process

The elephant in the room: referrals in the hiring process

"What is wrong with me?"

It was April of 2015 and I could not find an answer to that question, at least not in this context. I had just received another rejection email, and couldn't fathom how I could not even obtain an interview with any company I applied to. I was a sophomore in college, and like many others, seeking a summer internship.

"I am an Economics major at Penn State: University Park. I have a high GPA. I am involved in extracurricular activities. What am I missing?"

Between December and April of my sophomore year I applied to between 70-80 internship positions, most of which were paid. Of those applications, I received an interview for one paid position, and three unpaid positions. I felt frustrated. More accurately, I was mad as hell. I believed in myself, but I felt like no one would give me a chance.

Adding to my frustration, I noticed numerous, seemingly less-qualified classmates of mine were waltzing into phenomenal internship positions. I projected my anger onto these classmates, wondering how they possibly deserved these opportunities more than I did. I was unfair in my analysis; I failed to see my own failings in targeting applications and to comprehend my own lack of understanding regarding the hiring process.

Soon, I realized that many of my classmates were not obtaining interviews through the online portals I had been dumping applications into; many of them found their way in through a backdoor, the referral process.

For those unacquainted, a referral is a simple term indicating that a person inside or outside of a company recommended another person for a job. Referrals vary widely in terms of formality. Small companies may have extremely informal referral processes while larger companies will have a more defined referral process complete with referral codes and online forms.

There are numerous logical reasons for the referral process to exist. Within the hiring process, companies want to obtain as much relevant information about a candidate as humanly (or technologically) possible. An endorsement from someone within a company carries obvious weight; why refer someone unless you are confident they can do the job effectively?

Referrals become especially important as one climbs the corporate ladder. High-power, executive roles are rarely filled through some sort of generic job posting. More typically, someone within a company recommends one or more people to be interviewed based on a prior work experience with that person or a prior personal relationship. Seasoned executives' personal experiences with potential candidates likely convey more useful information than can be gleamed from a resume or cover letter in the latter stages of an applicant's career.

Yet the 2015-version of myself possessed no interest in the logic behind the referral process. I saw referrals as an unfair "cheat code" that allowed certain, well-connected students with powerful families and friends to simply skip the line for the best positions.

I was not entirely wrong. Many times, this is exactly how the referral process plays out. Hundreds of students apply to a job posting only to see the opening ultimately go to the child or family friend of a senior executive within the company. Even if the candidate referred is not among the most qualified candidates the referral is often at least enough to garner an interview, taking a spot from another student who lacked a referral.

The Importance of Quotas

The impact of the referral system depends greatly upon the presence (or lack thereof) of quotas within the hiring process. While human resources departments will rarely admit the existence of quotas within their hiring goals, they often exist in varying degrees of flexibility (particularly for university recruiting).

Why do quotas matter to the referral system? Imagine this scenario - a company plans to interview 10 students for 5 positions within its ranks. 100 students apply for these 5 positions. Theoretically, assuming similar qualifications for the purposes of mathematical simplicity, each student who applies has a 10% chance of getting an interview and a 5% chance of getting the job.

Sounds daunting? What if the company receives 8 referrals (of the 100 applicants) for these 10 interviews and each referred candidate obtains an interview? For these 8 students, the odds of earning the job have jumped from 5% to 50%. For the remaining 92 students, who now compete for two interview slots, the odds of getting an interview dropped to about 2.17%. This means their odds of getting the job dropped to about 1.085%, cutting their odds of getting the job by almost a factor of 5! All this is assuming a level interview playing field (not always the case as referred candidates may be given favor in a interviews).

Now imagine the same company gets 500 applicants for the original 10 interview slots. The 8 referrals maintain odds of 50% for getting the job while the remaining 492 candidates possess a .2% chance of obtaining the job.

Clearly, this is problematic. A bit of simple math illustrates how the combination of quotas and referrals within the hiring process can severely hedge the playing field against most applicants. Some of those odds can be offset by more flexible interview quotas.

If the company interviews ten candidates in addition to the eight referrals then the original 100 candidates will maintain hiring odds of 3% (assuming fair interviews) instead of 1.085%. This difference may seem small but can be pivotal - mathematically a student should obtain one offer for every 33 applications (assuming similar candidate fields) instead of one offer for every 92 applications.

What does this mean for corporations? If a company accepts referrals for interviews - in the interest of fair play they should avoid interview quotas or at least keep them flexible where possible. This will keep the influence of referrals in check and give standard applicants ample opportunity to prove their worth in an interview field. Corporations should also make a strong effort to be sure the influence of a referral does not extend into the interview itself, as all candidates deemed qualified for this stage deserve a level-playing field.

Referrals and Internships

Early career moves are deeply important to an individual's long-term income trajectory. Even career moves made while still attending school. Generally, students attempt to gain the best first internship they can (or any first internship they can) then use that experience to aim for a better internship the following summer, then ultimately for the best first full-time position they can. A very impressive first internship experience can quickly spiral into a job offer from one of the world's most prestigious companies by the time a student reaches his or her final year of school.

Referrals are particularly important in the early internship process because less differentiates various student applicants early in their university careers. Companies choose from many students with similar grades and very limited work or extracurricular experience who apply to the same roles in their respective fields. For these reasons, referrals become an easy, albeit somewhat lazy way for companies to differentiate students with similar early-career resumes.

Simultaneously, because many of these applicants lack work experience early in their careers, referrals are less likely to come from a professional contact who can vouch for an applicant's particular aptitude and more likely to come from a loyal family member, neighbor, or friend who wants to help a student out.

While there is no shame in helping friends or family, corporations seeking to be socially responsible must be careful to lean too heavily on referrals for internships and early career positions. These corporations are (hopefully unknowingly) helping perpetuate economic inequality by placing more well-connected students, typically from wealthier families and geographies, on an easier path to success while leaving less well-connected students to struggle for what positions are left. Particular industries are notorious for these types of placements, but similar patterns exist across the labor market. I encourage corporations to travel the extra mile to locate the best candidates, despite how well-connected they may or may not be upon entry to university.

The Good News

So, maybe you feel the way I did early in my college career. Maybe you are frustrated by what you perceive as a lack of fair play in the job market. Much of what I have written proves your frustration to be valid. Yet there exists a silver lining.

Networking in 2017 is much different than it was 20, 15, or even 10 years ago. Frankly, it's much easier. The existence of LinkedIn means that an entire professional world of contacts is at your fingertips. There is no reason to be intimidated, people are shockingly receptive to outreach, especially from students. Numerous people have offered me useful advice after a cold LinkedIn message. Some of them were only a year or two older than me while some of them had already climbed the ranks into executive roles at elite companies. Some even became important mentors and offered to refer me for positions in their companies; these people appreciated my willingness to make an effort and learn from their experiences.

While the modern accessibility of networking does not fix all of the problems associated with the referral system, it certainly helps to level the playing field. Beyond LinkedIn, websites like MeetUp and Reddit lend themselves to career-focused networking in various fields.

Referrals are an important, and at times, frustrating, part of the hiring process. Whether you like them or not, they will not disappear anytime soon. In order to build a more equitable labor market, I challenge corporations to limit the influence of referrals on early-career positions and to avoid strict interview quotas when referrals are involved. I also challenge those frustrated by the referral system to make an effort to build a professional network using the tools available.

Examining economic outcomes through conceptual linear regression

Examining economic outcomes through conceptual linear regression

Postgraduate success, social media, and the American Dream

Postgraduate success, social media, and the American Dream