Does your company make the majority of its hires through a referral program? It’s a popular hiring tactic for tech positions, in particular. After all, who better to find your next great engineers than the engineers you already have? Referral programs are so effective that companies have been known to offer up in access of $10,000 for each qualified candidate referred. Some have gone so far as to extend referral bonuses beyond existing employees.
While the benefits are clear, the government is giving recruiters a good reason to step back and explore the role referrals play in hiring. In a recent Office of Federal Contracts Compliance (OFCCP) filing, the government alleges government contractor Palantir used hiring practices that discriminated against Asian employees. The OFCCP complaint alleges, “…hires into these positions came from an employee referral system that disproportionately excluded Asians.”
The complaint argues the ‘overwhelming preference’ for referrals was a form of discrimination against Asian applicants (who comprised the majority of applicants to positions).
The OFCCP complaint provides several statistical examples to back-up its argument:
For the QA Engineer Intern position, from a pool of more than 130 qualified applicants—approximately 73% of whom were Asian—Palantir hired 17 non-Asian applicants and only four Asian applicants. The adverse impact calculated by OFCCP exceeds six standard deviations. The likelihood that this result occurred according to chance is approximately one in a billion.
What’s the deal with referral programs?
The complaint doesn’t provide statistics concerning which percentage of candidates came from referrals, but given the stats they do give, and the role the referral program plays in the complaint, it seems clear referral programs were a key part of the company’s strategy. The use of referral programs, in fact, negates a lot of the ‘statistics’ used to back up the government’s complaint. If you’re hiring most of your candidates via referrals, you’re likely not giving much weight to the make-up of the broader candidate pool, who likely never makes it past a phone screen.
The complaint doesn’t indicate what the racial make-up of the company is, but if broader Silicon Valley is any indication, it’s a lot of young, white men.
Silicon Valley has always had a bit of a diversity problem. Facebook has faced similar accusations of racial discrimination (without the big stick threat of losing hundreds of millions in government contracts), and Google has faced accusations of age discrimination. For recruiters and companies working in the government space, however, the OFCCP mention of referral programs should give pause to any company who brags the majority of hires come through referrals.
Referral programs are absolutely a great way to find talent. But if the majority of your hiring comes via referrals, and the majority of your company is currently fairly monolithic – you may be the next contractor with an OFCCP lawsuit on your hands.
What’s the punishment?
An OFCCP complaint is a threat with teeth. Failure to mitigate the government’s concerns can result in cancelling all of the companies current contracts along with a ban on future government work.
Read more in our OFCCP Resource Center.
