Research: Black Employees Are More Likely to Be Promoted When They Were Referred by Another Employee

It has been estimated that more than three-quarters of all jobs are found through social networks. This is known as referral-based hiring. As referrals have grown in popularity, so has the debate about their impact. On the positive side, referrals can result in improved job matches and reduced employee turnover. Hiring firms can get “inside” information about a candidate from their referring employee, while the referral itself serves as a vouching mechanism that signals a candidate’s competency or trustworthiness. Job seekers can discover intangible aspects about a job and organization from their inside contact, helping them better assess their overall fit at a company. But firms that rely on current employees to refer new hires could end up with a less diverse workforce. After all, “who you know” often mirrors “what you look like.” Hiring through social networks may especially disadvantage women and people of color, who may have fewer ties to firms that are dominated by a white, male workforce. Disadvantages at the referral stage may also affect career outcomes that are further downstream (e.g., promotions, assignments, job satisfaction). Unfortunately, companies often do not systematically evaluate how referrals relate to longer-term employee outcomes, or whether it varies across different groups of people. There has been little academic research on the topic, though some studies have found that referred employees onboard and assimilate faster; others have argued that this advantage is short-lived, as other employees catch up. In a recent study, we investigated the relationship between network-based hiring and subsequent employee promotions, comparing results across different demographic groups. Specifically, we examined the personnel records of nearly 16,000 employees hired from 2003 to 2013 in a large U.S.-based sales organization. The privately owned firm has offices worldwide, though our study focused on offices in the U.S. Over one-third of the company’s hiring happens through referrals; the rest is done through formal hiring practices, such as on-campus interviews or internship programs. We compared outcomes for women (38.6% of our sample) and men (61.4%), and between white (55.5%) and black (18.2%) employees. (We did not look at female racial minorities specifically, because we were concerned about having a small sample size.) The average age at hire was 25 years old. The firm followed a “promotion from within” policy that operated on a strict schedule. Employees would be up for promotion at specific points in their tenure; we called this a “regularly timed promotion.” If they were not promoted, they would be asked to leave. The firm also gave “outstanding promotions” to a few employees, who got to advance prior to their expected time. In this sample, we found that both female and black employees experienced statistically fewer regularly timed promotions than male or white employees. For black employees, though, being hired through a referral statistically increased their number of promotions (by a factor of 1.2), compared to black employees without a referral. This did not bring them up to par with white employees. We repeated the analysis for outstanding promotions (i.e., early promotions awarded to employees for outstanding performance). Again, we found that while black employees were statistically less likely to get outstanding promotions than white employees, this wasn’t true if black employees were hired through a referral. Black employees hired through a referral were just as likely to get outstanding promotions as white employees hired without a referral. All results remained after controlling for an employee’s education, performance, cohort, and office location. Exploratory evidence from a follow-up lab study conducted with U.S. graduate business school students suggests that this effect for black employees might have come from a referral’s positive signal of quality that persisted after they were hired. In the experiment, we asked participants to evaluate a fictitious employee for promotion or termination based on an employee file, which included their resume, how they were hired, and their subsequent performance evaluation data. All files were identical except for two manipulations: the employee’s race (which was either black or white) and the employee’s hiring method (by referral or campus interview). We found initial evidence that participants assigned to evaluate black employees hired by a referral were more likely to recommend promotions (rather than terminations) than assigned to white employees hired with or without a referral. When asked to explain their evaluation, we found that participants assigned to evaluate the black referred employees were less likely to discuss any hard, quantitative data in the employee file (which we held consistent across the conditions) to justify their recommendation. In the lab study, just as in our field study, we found that women received no benefit from being referred. While women received statistically fewer regular promotions (but more outstanding promotions) than men in the firm we studied, we found no difference if a woman was referred. We did some investigations to see if we could explain the “non-effect” for referred women, but thus far have not been able to determine any cause. Our study refines earlier findings that show referral-based hiring to be a practice that contributes to inequality. Referrals may not have universally deleterious effects for racial minorities, especially when considering a longer time frame of their career once inside a firm. This has implications for HR professionals and managers involved in hiring, who may be motivated to reduce investments in referral-based hiring to foster diversity. Our study suggests that leveraging networks to bring in employees may in fact have lasting positive effects for some members of traditionally disadvantaged groups, who can leverage these relationships once inside the firm. This is especially noteworthy given that the naturally occurring relationships that lead to referrals are often hard to replicate inside organizations.

Research: Black Employees Are More Likely to Be Promoted When They Were Referred by Another Employee

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