Five Myths About Rewards in Referral Programs

It has been wisely said: a myth is a nothing that is everything. Everyone supposedly understands that we should avoid simplifications, generalizations, and relying on hearsay. In practice, however, it is quicker, easier, and simpler to believe what others say — especially when they are many — than to check for ourselves. That is how myths grow. The recruitment referral industry has not been spared its share of myth-making.

As a rule, people know referral practice, better or worse, but rarely have they dealt with professionally designed and executed referral programs. It doesn't help that there is little literature, training, or even well-run blogging on the subject. Even a diligent HR professional therefore often has to fall back on opinions unsupported by data, or fragmentary information that fails to capture the full complexity of the problem. To remedy this state of affairs at least in part, we decided to collect the most popular myths about recruitment referrals and explain what the reality is.

A higher reward means more referrals

Half a truth is a whole lie. It is of course true that the possibility of receiving a reward influences the willingness to take part in a referral program. It is also good practice to additionally reward an employee or associate for every extra activity. Everyday referral practice shows, however, that while the reward matters, its size is secondary.

The key thing is that the bonus amount does not diverge from market standards. With referral programs growing in popularity, these are easy to establish, because many companies openly communicate how much they pay or even source referrals from people who are not employees. The referrer must not come to feel that the reward offered to them is lower than a fair market rate. Research and experience show, however, that above a certain amount, further raising the bonus increases neither the quantity nor the quality of recommendations.

You have to pay immediately

Many employers assume that to prove the referral program “works”, it is essential to pay the reward immediately after the hire. A common practice here is splitting the reward into tranches, where the first is paid right after the recommended candidate starts work, and the next (or subsequent ones) after successive periods worked. Our experience proves that this is yet another myth unsupported by the data.

If a company is viewed positively by referrers, pays market rates, and communicates the program rules well and clearly, the moment the payment happens doesn't matter much. Splitting the reward into tranches is justified in itself, though, and can serve the referral program well. Two transfers separated in time are two separate “signals” reminding people of the benefits of recommending friends for jobs.

Paying for referrals “spoils” employees

The reverse of the myth described above is the belief that money plays no role at all and people refer their friends driven purely by altruism. As before, there is a grain of truth in this generally mistaken claim. Referrers do want to help a friend move to a better job. It's also nice to have influence over your workplace and the shape of the team you work with every day.

The problem is voicing opinions like: “my employees already refer candidates to me, so why should I pay for something I already have?”. The retort suggests itself: if the team makes recommendations without rewards, how many more referrals could be obtained by ensuring proper compensation for their efforts! If a referral culture has emerged spontaneously in the organization (e.g. simply because it's a place worth recommending to friends), those attitudes should be reinforced. Over time, the program should generate more and more — and better, more accurate — referrals. By taking rewards out of this equation, we deprive ourselves of an instrument for influencing the effectiveness of the whole project in the long run.

We should also remember that the days when referrals were the domain of large companies with Western roots are long gone. Today it is simply an employee benefit that has already become standard, and not only in corporations. To give it up is to weaken the competitiveness of your employer brand.

Gamification is just fun and games

Gamification modules are unfairly underestimated by people who make only a superficial analysis of the needs and preferences of their referrer community. To them, gamification feels like something not entirely serious, and the perks associated with it seem weaker to many than a cash transfer. Everyone knows what a thousand zlotys is, but a thousand points could be everything and nothing, right? Not quite.

The primary task of gamification is not to make the referral program more colorful or modern. It is rather about removing the all-or-nothing reward scheme, a situation in which we get everything or nothing. We may receive a hundred recommendations for a single position, but ultimately we will hire only one person. We are left with one lucky winner and ninety-nine dissatisfied. That is not an ideal state of affairs.

It is better to reward every desired behavior that translates into value for the organization. Candidates are viewing our job offers thanks to an employee's recommendation? Good — that's a benefit from the standpoint of employer branding and recruitment marketing. New CVs are coming in? Excellent — that's growing the database. These “partial” successes are worth something in return. The same applies to the most active referrers. We reward the headhunter or salesperson with the best results to encourage greater effort. We should do the same, e.g., for the top 3 or top 10 referrers. In this arrangement, no one who diligently engaged in referrals walks away empty-handed, and the most effective feel it's worth trying even harder.

A referral program has a short shelf life

Another deceptive opinion is the belief that a referral program is good for a year, maybe two, after which “everyone will have already referred whoever they had to refer”. Eight years of our experience with our Clients' referral systems prove exactly the opposite thesis: the organization and its employees learn referrals over time, and year after year the results are usually better, not worse.

Creating an effective referral program requires building the right culture around it through communication, rewards, and procedures. Quickly including every employee in the program during onboarding is an example of an action that supports the dynamic acquisition of new referred candidates and plugging into new networks of contacts. Over time, the referral program's brand also strengthens: employees see that it works and want to share in its benefits. A kind of word-of-mouth marketing operates here, a “corridor” spreading of knowledge, particularly about rewards; we can also speak of social proof: if colleagues are referring, it means this is not just an “HR project” but an activity widely accepted by the team. Finally, no self-respecting referral program stands still. New modules are introduced (e.g. the aforementioned gamification), new referrer groups (e.g. alumni), promotional activities, and rewards.

The list above certainly does not exhaust the myths about referrals, or even about rewarding within referral programs. It does, however, name several errors that are particularly popular and dangerous to the success of the whole project. Organizations that manage to eliminate them will be well on their way to recruiting faster, cheaper, and more effectively thanks to referrals.