Employee referral program is a program where in employees refers their own friends, ex-collegues, college batchmates or acquaintances for recruitment in the company where they work. Employees are generally given incentives and bonuses if the person referred by them is indeed selected and joins the company henceforth.
This policy has several advantages. The new people joining the company are expected to have a realistic job preview through the person who has referred them. Hence the expectations are in line with what the company has to offer them. It also generally costs the company less compared to other means of recruiting like advertising, job fairs etc.
However, the policy can be exploited by employees who may refer people not capable enough for a position, just in order to receive incentives. They at times may also keep capable people at bay so as to prevent being threatened of their own position.