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Jul 23

Mutiny On A Bounty – Employee Referral Bonus

This is not a full mutiny. Employee referrals remain one of the most solid sources of hire for most companies. Looking at it from any angle the key factors of success are there. The speed, quality, cost and retention of hiring candidates referred by employees reveals that it is a smart business decision to encourage referrals.1 This mutinous rebellion is not against the practice itself but the manner in which it is usually executed. Most company employee referral systems are destined to self destruct because of basic flaws in the logic that created them. Like most ideas that are accepted as factual without challenge, it has always been assumed that the only way to get employees to submit candidates into the hiring system is to pay them to do so. Money is a strong motivational tool, but placing a bounty on suggested hires can also indicate a mercenary tactic and stir up a culture of bounty hunters rather than one of employees collectively seeking to improve the company by hiring quality talent. A referral should say “I endorse this person and vouch for their credentials” and “I would like for this individual to be my coworker” instead of “Thank you for paying me to do yet another job.”  

The Problem

There are a number of built-in time bombs that cause referral systems to fail.

  1. Complicated and Restrictive Rules – By definition the policy has to set guidelines that would qualify a referred candidate. The process is already complicated by the focus of multiple sourcing techniques merging on a single applicant database, but ownership of the referral is the key to determining who gets the payout. The larger the payout, the tighter the restrictions must be. Timing of payment is somewhat arbitrary as well. It is ironic that employees are told that they are a good partner in talent acquisition and a great judge of what makes a good employee, and then are told that they must wait for payment in case something doesn’t work out. Third party agencies are paid on the hire date while employees may have to wait three months or more to see their reward.
  2. Bureaucratic Administration – Anytime there is the creation of a law there must be police appointed to enforce the law. For employee referral programs this dubious honor usually goes to someone in the staffing function. As if there were not enough distractions to the efficiency of sourcing and hiring, adding the role of refereeing battles between employees referring the same candidate, or even worse overruling the referral because the candidate was first submitted by an agency or applied directly to a job posting, the recruiter becomes judge, jury and executioner. If the primary motivator is money rather than company loyalty, tensions mount and decisions can become political rather than stir up trouble with solid performers. Too many negative rulings or turndowns will always result in frustrated employees just giving up and submitting nobody.
  3. Setting Bounties Too Low – If the logic behind paying a bonus in the first place is that it is less costly than other sources then the obvious question is why. A candidate for employment has a market value based on the skills, experience and accomplishments that they bring to the table. Discounting their value cheapens their place in the system. It is like placing a book on the discounted book table in the store because it didn’t sell. Realistically the new employee does not have less value if discovered by a current employee. There is a visible twist in this logic by rewarding external partners with greater payouts than internal partners who are the day-to-day lifeblood of the company. Hiring on the cheap sends mixed messages. It can make good business sense, but the main incentive should be rewarding employees for being a loyal partner instead of a bounty hunter.   
  4. Setting Bounties Too High – If the bonus is seen as a windfall supplement to income it can defeat the purpose of getting candidates that walk in the door with a built-in employee reference check. The fact that referrals have historically been better hires is because they are either former coworkers, project partners or service providers with a personal track record. Employees will recommend just about anyone even if they are totally unknown if the sole motivation is money. The advent of broad social networking contacts has eroded the definition of “friend” and referrals may be on the outer periphery of known talent who are identifiable only by their online branding efforts.2 There have also been cases of self-appointed ad hoc in-house recruiters placing cheap ads in the local Penny Saver Newspapers or on tear-off sheets on supermarket bulletin boards that can totally dilute the company’s recruitment branding efforts.
  5. Global Companies Have Complex Issues – Almost every company that operates in multiple countries has the caveat in their referral policy: Employees in countries where local laws do not accommodate or allow participation are not eligible. There is also a shifting target to determine the amount of the payout in some areas. A few thousand dollars in the US could be several months pay in emerging countries. This immediately magnifies the problem if cumbersome rules and administration must have multiple faces. It is also an admission that the market value of the candidate really can’t be measured or is at best on a sliding scale. The complicated Big Mac rule comparing the cost of a McDonald’s hamburger in different countries has become a yardstick for some companies in determining international bounties. It must be logical…a clown wouldn’t lie to you.

The Solution

Change the Culture, Not the Rules – In a company culture where talent is compensated fairly, rewarded for significant accomplishments and encouraged to be innovative, the motivation to refer former coworkers or friends should be a desire to share that culture. It also gives them a method to reward their referred contact with a great job. To offer someone money to perform that act is almost like giving up and declaring that the culture is lacking and we have to bribe employees for their loyalty and dedication to excellence. Recognition does not have to be pricy. Special T-shirts printed with a referral slogan will be worn with pride by those who made their contribution for the right reasons. An Employee Referral coffee mug sitting on someone’s desk is a daily reminder to the recipient and visible advertisement to others that being a good employee is an integral part of the culture of the company. Public recognition with a handshake from the CEO or other important company official may not increase the employee’s bank account, but it is remembered much longer and is not seen to be a cheap substitute.

Conclusion

In a survey conducted several years ago 92% of the participants stated that they believed their bounty program was successful. Those polled in the survey varied by cost, type of hire and differing rules for payment confirming the fact that employee referrals are a good source of hire. Unfortunately, none of this gives any validity to the theory that a huge bonus is necessary. Of the companies that did not currently have a bounty system 68% said that they had no plans to implement a referral policy.3 There is no doubt that referral systems have been successful in producing quality hires and the opinions by experts seem to be that if a little money is good than a lot of money would be better.4 It is difficult to find any actual statistics to prove that point.

The balancing act of being fiscally responsible while optimizing results is always a challenge, but establishing a company culture that encourages loyalty and participation in growth by employees is harder. It is personal, it is important, it is critical that each program is uniquely designed for the current situation and must be scalable to grow or recede as necessary. Blindly accepting a vanilla package used elsewhere will bring all the bad along with the good. Be cynical. Question everything and make it work.

Must read references:
110 Compelling Numbers That Reveal the Power of Employee Referrals by Dr. John Sullivan
2Social Media Driven Referrals by John Sumser
3Referral Bonus On-Line Survey by World At Work, 2001
4Employee Referral Crossfire by Master Burnett and Gerry Crispin

 

Image credit: Wanted Poster digitalsun / 123RF Stock Photo

 

1 ping

  1. Reviewing This Week on Make HR Happen – July 22 thru July 28, 2012 » Make HR Happen by Tom Bolt

    […] Mutiny On A Bounty – Employee Referral Bonus – This is not a full mutiny. Employee referrals remain one of the most solid sources of hire for most companies. Looking at it from any angle the key factors of success are there. The speed, quality, cost and retention of hiring candidates referred by employees reveals that it is a smart business decision to encourage referrals. This mutinous rebellion is not against the practice itself but the manner in which it is usually executed. Most company employee referral systems are destined to self destruct because of basic flaws in the logic that created them. […]

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