Referral Bonuses to help you build the right team don’t always work

Deborah Kerr, co-founder of Affintus, wrote this very insightful piece on the value of Employee Referral Bonuses. As a corporate manager, my belief has always been that these bonuses are well received and effective.

“I am a big fan of using evidence to enhance decision making, especially when the decisions are related to employees. The practice of using employee referral bonuses has been popular for some years and many companies believe that hiring based on employee referrals results in “better” employees – a goal that any company would want to achieve! I recently became curious about whether or not the employee referral process actually achieves the effects that companies want: better employees and longer employee tenure. Here is a summary of numerous studies conducted over the last decade or so.

The research reports that candidates who are referred by current employees are more likely to be interviewed and are more likely to receive a job offer. But what about performance? Do referred employees actually perform better on the job?

There seems to be no evidence that the goal of hiring better employees (e.g. higher performing employees) is achieved by hiring employee referrals. Various studies find that recruitment methods like this “…do not exhibit a statistically significant effect on worker performance.” (see http://digitalcommons.ilr.cornell.edu/workingpapers/74/ for details)

There is also a notion that new hires identified through referrals are less likely to turnover than hires identified through other means. The evidence does not seem to support this either. A study published in 2000 found that referred new hires are no less likely to turn over than employees hired through other means – this suggests that better job match is “…not uncovered through referral [and]…Employees hired through referrals are, however, more likely to turn over when the referrer turns over, suggesting that social connections matter both pre- and post-hiring.” (Fernandez, Castilla and Moore)

The advantages of employee referrals (especially when employees share this information early in the recruitment process) is that referred candidates are more likely to better understand the company and its work and to be positively predisposed to apply. This is very useful in the first phase of the recruitment process: identifying potential applicants and persuading them to apply (Barber 1998). This benefit illustrates the importance of effectively marketing the organization’s employer brand both outside and inside the organization (Van Hoye 2010).

To have the most successful outcome, the research suggests using several approaches to finding the right employees and then using effective screening systems to gain the most benefit from the employee referral candidate pool.”

BizCoachAustin provides a service supported by Affintus technology call Predictive Job Matching.