Here's Why Cash Bonuses Don't Work for Referrals

June 2, 2017 at 12:48 PM by Cristina McComic

employee referral cash bonuses

The value of the employee referrals hiring channel is old hat in the recruiting world, with some companies going as far as offering exorbitant bonuses in exchange for access to their employees' networks. Despite this widespread practice, there doesn't appear to much evidence that it truly incentivizes employees. Google increased its referral bonus from $2,000 to $4,000 but did not see a significant increase in quality referrals from its employees. Meanwhile, GoDaddy actually cut the size of its referral bonus by two-thirds from $3,000 to $1,000 and actually increased their number of employee referrals. What seems to be the issue with cash bonuses for referrals? 


Lump sum cash bonuses do not encourage continuous referrals

Nobody is going to deny that having extra money is great. However, there are a few issues with companies giving large cash bonuses to employees in exchange for referrals. One issue is that cash bonuses are given as a large lump sum to employees after a candidate is hired which means there is little to no incentive for employees to continue making those small steps towards referrals. One alternative would be to set up a series of smaller more frequent rewards (monetary or otherwise) for every step the candidate progresses through in the hiring funnel. This allows there to be more immediate rewards for employees, and most importantly, it helps the company build a talent pipeline by incentivizing continued efforts towards referrals.

Cash bonuses “melt” into bank accounts and are used for routine expenses

When companies offer their employees pure monetary rewards like cash bonuses, the money usually just blends into their employee’s bank accounts and is used for routine things like paying for gas and groceries. Routine expenses are not very exciting and do not reinforce the reward aspect of the employee’s referral. Why not consider alternative incentives to cash bonuses, such as experiential rewards? Experiential gifting companies like Blueboard help companies give their employees experience packages rather than monetary bonuses--everything from outdoors activities like kayaking and horseback riding lessons, to food explorations of craft beer and vineyards, to exotic vacation getaways. Gifting your employees an experience like wine tasting or a trip helps them associate making a referral with an enriching experience that they can share with their friends and network. In this way, experiences make more effective and more efficient referral rewards than cash bonuses.

How to Use Behavioral Science To Increase Referrals

As demonstrated by the Google and GoDaddy cash bonus cases, the dollar amount of the cash bonus does not dictate the success rate of employees making referrals. So what does? Cash can only motivate a person to do so much, so after a certain point, there needs to be other factors involved that either intrinsically or extrinsically motivate them to do something. How then do companies motivate their employees to help make referrals?

First let’s step back and think about the concept of motivation in general.

Dan Pink’s Psychology of Motivation: Autonomy, Mastery, and Purpose

In his book, Drive, Dan Pink challenges the traditional carrot-and-stick paradigm of extrinsic motivation, and instead points out three very effective intrinsic motivators:

  • Autonomy
  • Mastery
  • Purpose

According to Pink, people have need to feel recognized for something they’ve done well. They also want to feel like they are a part of a larger purpose, and better yet, that they are good at something that is both needed and recognized as important. Pink draws from the idea that money can act as a motivator up to a certain point, but after a certain threshold, does not improve the performance of the incentivized task. True motivation, according to Pink, comes from within.

“The best use of money as a motivator is to pay people enough to take the issue of money off the table: Pay people enough so that they’re not thinking about money and they’re thinking about the work. Once you do that, it turns out there are three factors that the science shows lead to better performance, not to mention personal satisfaction: autonomy, mastery, and purpose.” (Dan Pink from “Drive”)

This RSA video gives a very clear breakdown of Dan Pink’s behavioral analysis of motivation. Employees are busy with their job duties and are difficult to keep engaged in making referrals. How then can companies make their employees want to make referrals without using cash?

Reinforce the Idea that Employees are Building a Community

Companies would be wise to make their employees feel engaged in a larger work community. Reinforce the idea that your employees are using referrals to help build the perfect team and create a collaborative work environment within the company. Better yet, tell them that referrals are their chance for them to curate their work community with people they know and like with similar aspirations and work ethics. Make them believe that what is good for the company can be good for them as well.

Make Employees Feel like they are Standing Behind a Larger Purpose

People love to identify with a larger, meaningful purpose that extends beyond themselves. Why not make that purpose your company’s mission statement? Does your company do something cutting edge, innovative, or disruptive in the industry? Talk about it. Does your company employ any kind of meaningful CSR initiatives like helping the homeless or the underprivileged in your community? Let those flags fly! Get your employees excited about what your company is doing and have them spread the word to others as part of the referral process. If your top candidates see that your employees are genuinely excited about what your company is doing and talking about the company as a part of their personal brand, those candidates might think more deeply about joining.

Recognize your Employees For Making Referrals

According to Dan Pink’s logic, one of the most primal and basic needs is to feel recognized for something you’ve done well. Making quality referrals is no easy feat and should be acknowledged as an accomplishment. Make sure to give your employees proper recognition for making quality referrals and doing their part to build an awesome company culture. Perhaps employ a motto to the effect of: “team players do team building” and make it publicly known when an employee helps recruit a successful hire. This will help employees feel recognized as an active and respected member of their work community who is doing his or her part to accomplish the company’s hiring goals.

Incite Friendly Competition to Help Build a Referral Pipeline

Need to fill up your referral pipeline quickly? Why not throw some friendly competition into the mix and set aside a company-wide time for employees to make referrals? Maybe offer the winner a gift card to their favorite restaurant or a voucher for a yoga class they’ve been meaning to try. A little extrinsic nudge in the right direction never hurts.

Make Employees Want to Refer Their Contacts

Companies are wasting tons of money on large cash bonuses when they could instead focus their efforts on intrinsically motivating their employees to make referrals. The key to increasing referrals is to make employees feel good about the company and their work environment, so much so that they will naturally want to engage their network. Empower your employees to take action as an active contributor to their work community. Give them the chance to work together with talented people they know and like. Get them riled up about the company’s mission statement and make them feel like they are part of a larger purpose. Reinforce the idea that helping the company is helping themselves. Companies can increase the number of quality referrals in their pipeline by creating a winning work culture that employees intrinsically want to share with their network,

Money is just money at the end of the day. Giving someone a feeling of pride and accomplishment in their actions is worth more than what any cash bonus can buy.

Cristina McComic is the Head of Content at Simppler, a recruiting technology company that turbocharges employee referral hiring, leading to faster & more cost effective hiring, better business performance, and lower attrition. Bi-coastal and international, Cristina holds a Bachelors Degree from Vassar College in New York and a Masters Degree in Chinese Business Law from Fudan University in Shanghai, China. Having lived abroad for 5 years and traveled around the globe, Cristina is excited to bring a fresh, international perspective to the hiring industry. She currently writes about hiring issues like eliminating unconscious hiring bias keeping employees engaged in making referrals, and how machine learning is revolutionizing recruiting. You can read more on Simppler's blog here.  

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