Few would doubt that those who work in call centers have extremely high-pressure jobs. Workers are on the phone for hours at a time, dealing with unseen customers, some of whom, depending on the function of the particular call center, can be angry, or at the least, impatient. Pay is often skimpy and turnover is rampant.

But as industry comes more and more to depend on humans working at phone banks to dispatch functions like sales, technical support and customer service and complaints, call centers have become vital and ubiquitous. Call Center Magazine, a trade journal for the industry, estimates that as many as 3.5 million people man phones in call centers.

Though some call centers, particularly those dealing with complicated financial products or sophisticated technological equipment, require workers with particular skills, many of the centers employ relatively unskilled workers. Some characterize call centers as today’s factories, with those unskilled workers earning far less — from $7 to $14 an hour — than those in heavier industry. Since upward mobility is almost non-existent, turnover, though difficult to chart, has been estimated at between 25% and 45% a year.

No business likes that amount of turnover, so employers at call centers savor any tips on how to keep workers. One way to do so, according to Wharton management professor Emilio J. Castilla, may be to get current workers to recommend, mentor and befriend new hires.

“In a call center, certain jobs such as answering phone calls for eight hours can be tiring, annoying and tedious,” explains Castilla, who recently completed a research paper about the turnover and performance implications of hiring new phone customer service representatives using social networks in call centers. Castilla examined whether referral programs (a common HR practice in the U.S. where employers pay current employees to refer workers for a job) help select “better-matched” employees. “Referral programs seem to show clear productivity and early-turnover advantages. They seem to attract more productive employees,” he adds.

Castilla points out that this is hardly surprising. “Social connections can help provide difficult-to-obtain and more realistic information about the job and the job candidate,” he says. “This is extremely valuable to both the employer and the job applicant.” Castilla notes that referral programs may also have important advantages after the hiring decision is made. “The experience of the employee hired as a result of a referral might be richer and more pleasant in the call center simply because a friend is around.” Castilla plans to present findings from his research at the Call Center Forum organized by the Wharton Financial Institutions Center, which will be held in Philadelphia on May 8 and 9.

Castilla’s research focuses on the hiring and post-hiring practices of call-center employees at financial institutions, concentrating on the effect of employee referrals in hiring, training, and retaining employees and in fact, keeping them working at all. His findings show that while it may be a positive move to have current employees refer new workers, it is equally important to make sure that employers keep those older referrer employees around and satisfied as well, especially if they are good performers.

“When you hire someone who is referred, you are bringing part of the worker’s social network into your company, and that can be beneficial in terms of turnover and performance,” says Castilla. “Employers often forget that by hiring a worker using a referral program, you now have an employee who is linked and even dependent on other workers in your organization. If you don’t retain the mentor, then the new employee may well say, ‘If she/he goes, then I will follow him/her as well.’”

Castilla says his research showed that employees hired as a result of referrals tend to be clearly more productive than non-referral employees (i.e., those who are hired using other recruitment sources such as newspaper ads, local job fairs, etc) at the beginning of their job contract, even controlling for human capital characteristics such as differences in experience, capacity to work, etc. “But in the long term, my analyses support an important social process which is often overlooked by managers: The departure of the employee referrer significantly increases the chances that the referred employee could leave the call center soon after — even though the referred employee has been in the company for a while. Moreover, I have found that the referrer’s decision to leave also negatively affects the referred employee’s level of performance, perhaps because the departure of the referrer leaves the referred employee unhappy and dissatisfied with the quality of the work setting.”

Castilla warns that this is the major reason why “employers should manage referral programs carefully. Managers should pay attention to the fact that with referral programs you are hiring socially connected employees. The benefits of hiring through social networks could turn into disadvantages when these networks are poorly managed or simply ignored.”

A social network is clearly extremely positive if managed properly, according to Castilla. And this is not the case just for jobs like those in call centers. He points particularly to the halcyon days of Silicon Valley’s start-up technology companies: “Many employers across different industries and geographic regions believe that employee referrals help them hire better workers. This perception, for example, was remarkably common among employers of high-technology firms and entrepreneurs in Silicon Valley, especially in the 1990s and early 2000 when specialized labor markets were tight.” Stories abounded about how friends would band together, working ridiculous hours but seeming to have loads of fun. Foosball and paint-gun games; pizza parties and extra-caffeinated Colas; romances after 18-hour think sessions — such was the stuff of the 1990s start-up saga.

Whatever did come out of the Silicon Valley boom-and-bust of those days, the pattern of hiring friends and other referrals of current employees may well be a good example for call-center managers to follow.

“When someone is referred to a job by a friend, that friend will provide him or her with information about the job and the employer, information beyond the requirements and characteristics of the job such as exactly how much money you will make, and what benefits to expect,” Castilla says. On the other hand, no one is being fooled at the hiring process either, which creates realistic expectations. And when the manager, after the interview, likes and wants to hire the potential employee, there is a strong chance that the job candidate will accept the job offer. “Such employees come with knowledge about the job and whether they would want it,” Castilla notes. “Properly managed, this is a good situation all around.” Referrer employees also provide social support to those who are newly hired. “They can help with the training, mentoring, and monitoring of the new employees they refer. After all, we all wish our friends to perform their best in jobs to which we have referrred them,” Castilla claims.

Castilla’s research is especially relevant at a time when more call-center jobs are moving off-shore to countries such as India, the Philippines and Malaysia. In these countries labor costs are not only significantly lower —which in some cases could mean cost reductions as high as 40% to 50%— but employee turnover rates are also believed to be much lower. In India, for example, some estimates place the employee turnover rate at less than 20%. A survey by India’s National Association of Software and Services Companies notes that call-center services there increased 70% between 2001 and 2002, and the current number of 100,000 employees may increase more than 10-fold in the next five years.

One reason why India has attracted call-jobs in large numbers is the presence of a large English-speaking population. Although just some 5% of Indians are proficient in English, in a country of more than one billion people, this still represents a labor pool of more than 50 million people. In addition, India has a highly-educated middle- and working-class population. And labor costs in India are quite low compared to the U.S. Someone answering complicated financial questions on the phone in the U.S. may expect $40,000 a year, but in India, the person may be paid barely one-fifth that amount.

Castilla says he is interested in doing research that compares call centers operating in foreign countries and cultures. Meanwhile, however, he has studied the precise mechanisms by which the hiring of new employees using employee referrals might be advantageous to employers in the U.S. Castilla does note, though, that managers are extremely concerned about giving the referrer employee too much of a financial incentive to recommend their friends. “Many employers believe that if you tell employees you will give them money if they refer someone, they might just try to find anyone off the street, without any pre-screening. After all, the employees are free to refer anybody, and they might even get a bonus,” he says.

Castilla explains that some companies have begun to structure referral bonuses in a way that they are distributed gradually over time. One possible model is for the employer to pay a third of a bonus for someone who actually gets interviewed and hired; a third if the new employee stays six months or a year in the company; and a third if the employee stays longer than a year. “This way there are incentives for employees to refer candidates who will stay in the company long enough,” says Castilla. “Some employers are getting very creative in creating and implementing bonuses and referral programs that help them search for and keep human talent in their organizations.”

Castilla points out that retention may be the single biggest issue for trained employees, whether they are in entry-level jobs in call centers or even high-tech engineering firms or consulting firms. “Employers who spend a lot of money in recruiting and training do not like high and quick turnover” says Castilla. “If you can manage employees’ social networks, these networks can help you attract the best employees, and later, help you keep these employees. Even if the employees are not exactly thrilled with their work, they may be productive and satisfied because they are working with friends. If you can tap into employees’ social networks to achieve all this, then you are working towards a socially stable, comfortable, and therefore performance-enhancing workplace. That is what most employers should be looking for.”