Employee Referral Bonuses


By Phil Harwood
With the continuing labor shortage, many companies are greatly increasing their employee referral bonus amounts. The question is whether this is an effective strategy. Or, is it simply a desperate attempt to solve an unsolvable problem?
Employee referrals are an important part of a company’s recruitment process. This has been true since the beginning of time and will most likely continue to be true forever. In fact, employee referrals are almost always cited as the most effective strategy – number one on the list.
Employee referrals are most effective when employees enjoy where they work, who they work for, and the work itself. In other words, when an employee is highly engaged, they are most likely to invite others to give their company a try. This just makes sense. If I’m having a good time, why wouldn’t I tell others about it?
This highly engaged employee is not going to ask for money to make a referral. But an employee who is not so engaged, may only be willing to go out of their way to make a referral if they are paid to do so. The referral bonus is basically a bribe. Do bribes work? Sometimes. Do even larger bribes work better? Probably. But they’re still a bribe.
A better way to think about an employee referral bonus is as a form of appreciation – a way to say “thank you” for bringing a new person to the company. In this regard, a larger “thank you” just feels like it’s no longer a form of appreciation but something else. It sends the wrong message.
There is a short-term benefit from increasing your employee referral bonus amount, which is worth noting. It creates an opportunity to grab everyone’s attention. It provides a platform to remind your employees of the urgency to recruit. And it may create some excitement. But the novelty will wear off quickly so this is best done for a short campaign.
For example, let’s say you want to increase your employee referral bonus from $100 to $1000. That’s a big jump and will certainly get someone’s attention when it’s announced. Make this a 30-day campaign instead of a permanent new amount. Maybe whoever brings in two or more new people is entered into a drawing for a week of paid vacation. Go big or go home, right?
In sum, highly engaged employees will continue to recruit others with or without payment. Less engaged employees will recruit if paid. And larger payments have a short shelf-life.
If your internal data shows otherwise, you are an outlier and that may not be a bad thing. Numbers don’t lie. If something is working for you, keep doing it. But for the majority of companies, increasing employee bonus amounts will have no material effect on recruiting, with the exception of a campaign-style, short-term bump.

What’s a better solution? Improve employee engagement. This is why we created GrowTheBench: to help companies in this area. How does it work? Check out one of our free online courses and see for yourself.  
Now go forth.

Tags: Labor , Referrals , Recruitment ,