Bonus referral programs: Do they work?
One of the hottest recruiting trends is expanding internal and external referral
programs. Referral bonuses, which sometimes approach the level of placement agency
fees, are becoming more prevalent. But before hiring managers jump on the bonus
bandwagon, they should consider some important questions.
- What constitutes a referral?
- Do referrals lead to more quality hires?
- Are referral programs invitations for employees to engage in "conflict of interest"
behavior? Are they an incentive to commit outright fraud?
To answer those questions, think of the times you have referred someone to the human
resources department. I have made over two dozen referrals during my career, with
spectacular results -- all but one of my referrals was hired, and they all stayed in
their jobs long enough to contribute. Why the success? I was willing to put my
credibility on the line, explain why the person would succeed, meet with the hiring
manager to pitch my candidate, follow up on the status of the position, and offer
continuing support to the friend who was hired. I never received a dime for my efforts.
(However, it did make my job easier to have numerous connections outside of the
mainstream organizational structure.)
In the 1960s, employers began to methodically mine employee referrals. They
developed campaigns to brand the activity as an important "team effort," and sometimes
offered rewards. But HR staffers quickly learned how wary employees were of risking
their credibility by recommending someone for a job. So HR made adjustments to ensure
that referral programs were fun, that everyone was acknowledged, and that results were
McGill University in Montreal conducted an in-depth study of the phenomenon and
found that employee referral programs were more successful when incentives were linked
to results: a higher-performing employee with longer tenure.
Almost all incentive programs excluded human resources professionals and department
(hiring) managers. The oft-stated reason was that it was those folks' job to find,
attract, and hire. There was also the possibility of collusion between the hiring
managers: "I'll hire your candidate if you hire my candidate." By hiring each other's
referrals, they could increase their income at the company's expense if they did not
hire the most qualified candidate.
The bane of most employee referral programs was the labor they necessitated.
Tracking each and every referral and referrer was time-consuming. Renewing interest in
a program every few months became a logistics and communications nightmare. Little time
was devoted to evaluating results to determine whether the bonuses awarded to employees
not only produced better candidates, but cost less than other recruiting strategies.
Most corporate programs languished during the '80s. Very few corporations' employee
referrals yielded a 25 percent (or higher) new-hire rate.
Now, the Internet allows easy automation of tracking and communication requirements.
The labor factor has practically disappeared; we can now track a recommendation from
outside the company just as easily as one from within. In the rush to reinvent the
employee-referral concept, corporations have begun automating the collection of
referrals from vendors, customers, clients, former employees, and total strangers
visiting a Website. Employers appear willing to pay essentially the same incentive, no
matter where it comes from, and the incentives have increased. Offers of $5,000-10,000
are not that unusual, and a $500-$1,000 bonus is now considered paltry by many.
A dozen dot-coms have sprung up this year that offer turnkey solutions, each with a
different twist. Such companies as Angami, CareerRewards, jobTAG, refer.com, and
Referrals.com have been in the news and acquired converts.
Consider the following as you revamp your referral programs to take advantage of the
newest trends in automation:
Some referrals are not as good as others
"A" players tend to refer "A" players. Your employees know your company's culture. Is
someone is an outsider to your company, their referral may be off target and simply
lead to another referral in a long chain of connections. Mining this chain of referrals
is what often differentiates third-party staffing pros from corporate recruiters. The
pros will tell you that it is a labor-intensive activity that requires communication at
The size of the reward is both good and bad
A large reward for a successful referral gets attention. The chance to receive a much
larger reward is even more enticing. But as the reward increases, an employee's
priorities shift from helping the company to helping himself. Studies show that the
employee is less likely to refer people he knows, and more likely to refer any Tom,
Dick, or Harry in his Rolodex. Look for a balance: If your employees can make a living
making referrals, then maybe they should.
Duplication of effort makes more work, not less
Automated referral systems facilitate posting job content, track and report referral
activity, and manage the payouts and acknowledgements. But they do not cover every
situation. Make sure employees can easily find these bonus positions via their
intranet. Make sure bonus referral job openings are distinctly separated from those
that don't offer a bonus.
Measure results and employee satisfaction
What is the real cost benefit of hiring via referrals? Do larger bonuses yield more
qualified candidates than other sources? If the percentage of new hires from this
source is increasing, which are decreasing? If agency hires are not significantly
affected, savings might not be an appropriate measure. Are employees who have made
successful referrals satisfied with the program or do they resent being paid only a
portion of a placement fee?
Valuing diversity requires diversity
How many professionals who are female or persons of color will a typical white male
refer? If your referral program results in a significant number of new hires, be sure
to learn about the demographics of the referral population.
The potential for conflict of interest
Imagine you are a CEO and you discover that several of your rising marketing stars are
making a significant bonus income by surfing to referral bonus sites and recommending
talented friends for jobs with other companies. Some of these friends are their
coworkers. How do you feel about an employee helping some of your best talent connect
with your competitors? What will you do?
What message are you giving your employees when you publicly encourage your
competitors' employees to send you their coworkers in return for $1,000, $5,000, or
$10,000? That is what third-party firms do, but they tend to be a tad less intrusive.
Do you wait until you discover that one of your corporate recruiters has set up a
friend outside your company (with the resumes he has mined from third-party Websites)
before you ask the secret of his success in hiring outside referrals?
Less than 100 years ago, a referral was someone who showed up at the door with a
letter of recommendation from someone you knew and trusted. Today, we have a multitude
of tools to expand and develop the concept. Let's not forget the fundamentals nor
overlook the pitfalls. Limit the downside and measure your results carefully.
Mark Mehler also contributed to this article