Are referral programs a worthwhile recruiting tactic for D&I in the insurance industry?

Employee referral programs (ERPs) have long been considered an effective way to recruit new employees. Research shows that referred candidates are more likely to accept offers and less likely to quit.¹ This, in turn, results in lower recruiting costs and less turnover, which is a win-win for recruiters and employees alike.

Increasingly, though, employers are looking for referrals to help increase diversity and inclusion (D&I). But how worthwhile are referrals for D&I? The evidence is mixed, but the answer seems to be yes―if they’re structured properly.

Why traditional ERPs are flawed

In a traditional employee referral program, existing employees are asked to recommend potential candidates in return for an incentive, such as a bonus or time off. But this approach doesn’t necessarily help increase diversity—and may even harm it.

Often, traditional ERPs suffer from nepotism (favouring family and friends), affinity bias (favouring people with similar interests, backgrounds, and experiences) or the halo effect (a cognitive bias in which one quality influences your impression of other qualities, for better or worse).²

In other words, they favour family, friends and those with similar backgrounds and experiences—and may be influenced by biased impressions of suitability based on traits such as ethnicity or gender. So, if an organization isn’t already diverse, it won’t become more diverse.

According to a 2017 survey of 53,000 U.S. workers by PayScale, a compensation software and data company, about 40 per cent of all referrals are white men.³ White women are 12 per cent less likely to receive a referral, men of colour are 26 per cent less likely and women of colour are 35 per cent less likely, according to the survey.

Taking a data-driven approach to D&I

While ERPs are flawed, they can still work if they’re structured properly. The belief that an ERP will negatively impact diversity is flawed, according to HR expert Dr. John Sullivan.⁴ He argues that data-driven corporate referral programs allow organizations to identify the drivers of negative impacts on diversity—and to neutralize them.

Compared to even 10 years ago, Sullivan says today’s workforces are more diverse and employees are much more connected because of social media. He suggests that organizations should “rely 100% on data” for their ERP approach to increase diversity. That means using data collected from recruitment efforts to identify what’s working and what’s not, and then adjusting accordingly.

Organizations also need to make diversity the “primary focus and target” of referrals, he says, while “helping the team” should be the primary motivator (as opposed to money). Developing an inclusive corporate culture and targeting diverse referrals starts by educating employees on how diversity improves team performance—and that this improved performance is an essential reason for increasing diversity.

Making it work

This point is reiterated by Candice Morgan, head of diversity and inclusion at Pinterest, in an article for Harvard Business Review, who says that “setting diversity goals isn’t enough” and that you need to repeatedly explain why they matter.⁵

In 2015, the company set a public goal to hire more women and candidates from underrepresented groups. By continually working to build a culture of inclusion, the company has seen significant increases in referrals in these areas—despite not offering monetary rewards for referrals.

Chipmaker Intel has also had success in increasing diversity through referrals. The company uses data to determine what is and isn’t working and posts the results publicly. In 2015, they committed $300 million to support full workforce representation of women and underrepresented minorities by 2020.⁶ They achieved this in part by explicitly targeting certain referrals and then offering double the referral bonus for women, minorities and veterans.⁷

Improving D&I in the insurance industry

Each organization is different, and each will require a different approach to increasing D&I. But by making diversity a ‘target’ and taking a data-driven approach, ERP elements that have worked for other organizations can be adapted successfully in your own organization—making referrals a worthwhile way to increase diversity and inclusion.

Sources:

[1] Stephen V. Burks, Bo Cowgill, Mitchell Hoffman and Michael Housman; “The Value of Hiring through Employee Referrals” (The Quarterly Journal of Economics, May 2015, Vol. 130, Issue 2, Pages 805-839). https://academic.oup.com/qje/article-abstract/130/2/805/2331590?login=false

2 Janice Gassam Asare; “5 Anti-Racist Hiring Practices Every Workplace Should Adopt” (Forbes, Aug 11, 2022). https://www.forbes.com/sites/janicegassam/2022/08/11/5-anti-racist-hiring-practices-every-workplace-should-adopt/?sh=7f2270d2187a

3 “The Impact of Job Referrals: Effects on Pay, Engagement, Diversity” report (Payscale, 2017). https://v2-wp-staging.payscale.com/data/job-referrals

4 Dr. John Sullivan; “A Referral Program That Actually Increases Diversity… Requires These Design Features” (DJS Talent Management Thought Leadership, Dec. 6, 2021). https://drjohnsullivan.com/articles/referral-program-increases-diversity-design-features/

5 Candice Morgan; “What We Learned from Improving Diversity Rates at Pinterest” (Harvard Business Review, July 11, 2017). https://hbr.org/2017/07/what-we-learned-from-improving-diversity-rates-at-pinterest

6 “Intel Diversity and Inclusion Annual Report 2015” (Intel, 2015). https://www.intel.com/content/www/us/en/diversity/diversity-2015-annual-progress-report.html

7 Cat Zakrzewski; “Intel Doubles Up on Hiring Women and Minorities” (The Wall Street Journal, Aug. 3, 2015) https://www.wsj.com/articles/BL-DGB-42906