Employers could save themselves a fortune in recruitment costs if they did more to encourage and reward their existing employees to exploit their social networks and refer people they know.
A study carried out in the UK by Capital Consulting shows has found that fewer than one in five (18 per cent) of employees work in organisations which encourage them to recommend friends or acquaintances.
Yet a quarter said that they know someone they could refer to their employer straight away, suggesting that companies are missing out on rich pool of talent which they could access without incurring agency fees or other recruitment costs.
Based on average salary and recruitment costs, Capital Consulting estimated that a company hiring 250 people per year would save £80,000 if just one in 10 of these came through referrals and a £250 reward was paid for each.
If every company listed at the London Stock Exchange did this, the total saving would be more than £260million annually.
Marisa Kacary, Marketing Director at Capital Consulting, said that employers are missing a trick by not adding formal referral schemes to their recruitment arsenal.
"Companies that actively promote referrals are making the most of their employees' potential as de facto recruitment agents, attracting higher quality employees, and avoiding costly agency fees," she said.
Even without formal schemes, the survey found that almost half of employees have referred someone, four out of 10 have been referred by someone else and two-thirds are happy to refer someone in the future.
Marisa Kacary argued that the candidates who come through such referrals have already been vetted by an employee, they are usually a better fit with the company and the job and have a better understanding of the business.
With a ready-made network of workmates, they settle in quickly and tend to stay longer than employees who come to the business through external agencies. They are also more likely to perform well so as to not reflect badly on the one who recommended them.
"Whether it's due to short-sightedness or a lack of expertise, most companies seem reluctant to endure the short term pain of setting up a scheme and are paying the price in the form of high recruitment costs and staff turnover," Kacary added.
"Yet referral schemes are simple to set up and operate, cost-effective and easy to promote through internal communications. With competition for talent fiercer than ever, it's time for employers to explore this hugely under-utilised method of finding the right man or woman for the job."