Insights

Could Your Employee Referral Bonus Program Backfire?

Posted by Reed Flesher

For many companies, an employee referral program can help source talented recruits that may otherwise go undiscovered through traditional hiring practices.

This is an excellent way to reward employees who go the extra mile to assisting the hiring team and incentivize others to do the same — commonly, an employee who brings a referral who goes on to be hired will receive a bonus. If done wrong, however, can employee referral programs backfire and hurt your recruiting efforts? Before you roll out a referral program, it’s important to understand that there can be a hidden dark side to employee referral programs.

Damage to Diversity

These days, many companies want to go beyond “talking the talk” of diversity and genuinely create diverse and inclusive workplaces with talent that offers unique backgrounds, perspectives, and skills. However, they also want to benefit from the high quality hires that referrals can provide.

For organizations who already lack diversity, employee referral programs can only add to the problem. That’s because most employees will likely refer people who are like them because of people’s natural tendency to self-segregate and interact more often with people who are from a similar race, gender, and socioeconomic status as themselves.

The Bounty Effect

Current employees who are engaged in their role can be a credible voice of your company’s brand as a great place to work. However, if potential recruits know that their friend or colleague is getting a financial reward for bringing them onboard, they may not feel that their intentions are sincere or that they are getting a reliable assessment of you as an employer. Knowing that there is a bounty on their head may lead them to believe that they are being asked to apply because there is a potential payout for someone, which can decrease the attractiveness of your organization.

Maximizing the Positive

If your referral bonus program is an integral part of your organizational culture, then there is no need to throw it out entirely. Rather, recruiters and talent managers should be mindful of how these incentives are deployed. One thing that may be helpful in curtailing a potentially bad perception of a referral bonus program is a delayed payout, such as only after the person has been hired and working at the company for six months. This can alleviate some of the appearance of bounty-ism and make it clear that you are only interested in recruiting talent that will be an appropriate fit and that would find satisfaction in working for you.

In terms of diversity, one way to control for bias is to do blind screenings where referrals’ names and photos are not shown to hiring managers. Additionally, you could reach beyond the employee population as a trusted source for referring and open the ability to thought leaders, clients, and others in your professional orbit.

Finally, if you think that a referral program has become genuinely problematic in your hiring strategy, there are ways to reward referring employees that are not monetary. This can be by recognizing referral efforts positively in performance reviews, offering extra PTO, gift cards, free meals, or company swag such as electronics.

Want to nurture a strong talent pipeline that includes a robust referral program? Contact us today to learn how Thrive’s TRM platform can improve your talent management.

Inbound Recruiting