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How your Employee Referral Program may be hurting recruiting efforts

Employee referral

Johnny Walker Blue Label. A memorable “thank you” and conversation starter

Employee referral programs

How do companies incentivize employees to participate in Employee Referral Programs? Maybe the question is: What are companies doing to DISCOURAGE the employee referral? If your Employee Referral Program pays out only after an employee referral has been working for 3-6 months, or splits the referral bonus, chances are your company is sending the wrong message to the workforce and not getting the referrals you are hoping for.

On the HR message boards, this topic has come up more and more in the recent months as the market heats up.

Despite my Nasty tactics, even the company I work for is hurting for candidates. We have a number of openings and even with a number of outside recruiters working on these, it is tough. The market has heated up. It is Sahara Desert Heat.  In the immortal words of Matthew Broderick from Biloxi Blues, “Tarzan couldn’t take this Heat”. It is the same with a number of my colleagues at other companies as well. I just got off the phone with a contracting company and their contractors are booked 5 months out. No love for the player hater.   

To combat this market, we offer a couple of incentives if an employee refers someone who we hire. You can have your choice of a Bottle of Blue Label and for those of you that don’t drink, the latest version of the iPad. I am about to throw out the new iPhone into the list of choices as that is the new conversation starter on record.  We can even get the Apple products engraved “thanks for the referral from (our company name)”. It is a great conversation starter and this person is more than likely going to know other great candidates. I want them thinking of ME!

I recently asked the entire company to post a link to our Careers Page on their social graph and shout out that we would give one of the above “thank you gifts” to them AND the person from their social network that refers us the hired candidate. Why do I care where the referral comes from?

Companies say thank you for an employee referral in a number of ways. These range from “nothing” to thousands of dollars cash in the financial industries for some positions. I think that most of the tech companies in town are paying in the $250.00 to $500.00 range. Pay structures range from:

  • no bonus referral at all
  • both the new hire and the employee split the bonus
  • paid after 6 months of employment

When I hear these things, I just cringe. To me, some of these pay structures just reinforce that HR has no influence on the company or that the company doesn’t really value these referrals. Never mind the money saved via a referral fee the company would pay an outside recruiter for that new hires.

Most outside recruiting agencies bill 20 – 25% of the first year salary and will have no guilt on whether or not that new hire is a genuine asset to the company. I feel very lucky in that we work with some amazing outside recruiters and when they do a search for us, they usually only give us only 1 candidate, and it is a near perfect match that leads to an offer and a long-term hire.

For the most part, recruiters don’t give a shit if that employee works out or not beyond the first 6 months (the guarantee period). They collect their money within the first 2 weeks of the new hires start date. They just want to place people.

If you are setting up an Employee Referral Plan (ERP) in your company, treat the person that referred the candidate like you REALLY appreciate the effort. Reinforce the behavior you want. Asking someone to wait 6 months or “splitting” a bonus sucks.  Tell each person they get “x” instead of “50% of X”. I don’t want “half of a bonus”!!!! “I want my own”.

Most employees do NOT refer a candidate to the company for the referral bonus. They do it because they feel it will help their company, they will help the candidate or both. These are the right reasons. I don’t want to offer a bounty that is so large that it motivates the wrong behaviors. I want to say “thank you” with a token of appreciation. I am confident, whether we offer $500.00 or $1500.00 I would receive the same number of resumes for open positions. I know because I have done it in the past and it didn’t make a difference.  Employees either know candidates that would be a good fit for their companies or they don’t. There are people who refer and people who “don’t”.

Random thoughts on the Employee Referral Program

  • If your company is willing to spend big bucks on an outside recruiter who HAS NOT worked in your company, does not know the nuance of the culture, then it should be willing to graciously say thank you with an employee who DOES know the nuance and is putting their name and reputation on a referred candidate.
  • Make the payment effective the first day of employment. The candidate went through the interview loop, and the hiring manager had enough confidence in the candidate to make the offer.  Don’t punish the person that referred them to making them wait. Success will be determined more by the hiring manager and the team surrounding the new hire than the person that referred them. The two may not even be in the same department.
  • I do understand that the person that referred them MIGHT be motivated to make sure they succeed if the payment is paid after 3-6 months, but then what?  Do they stop helping with the new hires onboarding and acclimation process??? Make sure you reward the right behavior, which is bringing in candidates.
  • Offering Zero, Nothing, Nada for as a bounty for a hired candidate is an insult.  Yes, I did say that the employee should make the referral for the right reasons, but the company should say “thank you” in some fashion.  In the least allow the employee and the new hire to go out to dinner and celebrate together with a gift certificate to a nice restaurant.  They will bond and there may be a discussion on “how to be successful”. You are going to pay that new hire $1000.00’s of dollars a year in salary and spend more on training.  Dinner isn’t too much to ask.
  • Referral bounties don’t have to come from HR. They can just as easily come from a department budget. If your HR department is too conservative for any of the above and just wants to give out a gift certificate to the local movie theater, suggest to your manager that the department fund the bounty for specific hard to fill positions.
  • There are cases where “no bounty” is appropriate. If you have more applicants than you know what to do with, a case can be made. Personally, whether you have 50 candidates or zero, 50 openings or just one, I don’t see how a couple of hundred bucks of goodwill on top of an annual salary will make a huge difference for a great candidate.
  • Money is nice, but we want to balance the “thank you” with a memory vs. cash money payment. An Apple product and a great bottle of booze are both conversation starters that may generate us more referral advertising.

At the end of the day, design your referral program to reward the specific behavior you want to reinforce.

See you at the after party,


nasty: an unreal maneuver of incredible technique, something that is ridiculously good, tricky and manipulative but with a result that can’t help but be admired, a phrase used to describe someone who is good at something. “He has a nasty forkball”.

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