Referrals cut cos’ recruitment costs

HYDERABAD: Referral recruitments are nothing new. But what’s new is India Inc’s willingness to pay astrnomical referral bonuses to the existing employees. Many are banking on such a system to hire recquired talent.

At the Hyderbad-based Juniper Networks, the referral system accounted for 50% of the 290 employees hired this year.
“Being a product development company in niche areas like IP platforms, finding the right talent is key to our progress. Referral bonus helps encourage employees to bring like-minded people to our company. This, in turn, will improve retention rate,” says Sridhar Sarathy, the company’s managing director for India. Besides monetary benefit, ‘successful recruiters’ within Juniper also hold a chance to win gifts like motorbikes and flat screen TVs every quarter.

Ditto for Virtusa. Employees at this Hyderabad-based company can win a holiday to any Asian country or a Maruti Swift every quarter, apart from cash incentives. The rewards also consist of gizmos such as iPods and DVDs. While middle-level referrals at Virtusa can fetch Rs 50,000, those referring a person with 10 years of experience can earn Rs 75,000. “It is cost effective for us to offer incentives to our employees as this system is 25% cheaper compared to third-party recruitment. This year, 40% of our recruitment was done through referrals, against 25% last year,” says David Raj, associate HR, Virtusa.

The story for the big players, however, is not quite the same. Satyam, for example, offers about Rs 25,000 for an employee referral in India and about $500-$750 for a referral in the US. At Infosys, referral incentives range from Rs 15,000 to Rs 50,000 depending on the experience of the recruit.

Cognizant CEO Lakshmi Narayanan admits that the company’s referral incentives are nothing substantial though 50% of its lateral recruitment needs are met through this system. “Wipro offers Rs 5,000 to Rs 10,000 for a middle-level recruit, which is considered to be the industry average, but MNCs like IBM are known to offer double the industry average,” say sources.

While cash incentives are given along with the monthly salary, as and when the person referred is recruited, one might have to wait for the end of each financial quarter or year for the gifts, which are based on lucky draws. Referral systems help minimise risks in a stiff job market. Most companies allow employees to refer another person on the first day of the appointment itself in the form of a buddy list.

Apart from lower costs, the referral system helps companies ensure the new recruit’s credentials are good. “A referred person is considered to be more reliable as employees also tend to share a certain responsibility. In 2006, 34% of our recruits were through referrals against 26 in 2005,” says Lekha Sishta, senior director (HR & performance development), SumTotal Systems.