Referral bonus

Referral bonus'' is a reference to the promise to pay some bonus (it could be a cash or some product) to a person (referrer), who providedreferralorreference'', which resulted in a succesful candidate hiring or a new client. There are two main uses of referral bonuses: in recruitment and in sales. Also referral bonus could be used in fundraising or other activities, which require personal contacts.

Advantages of referral bonuses

Access to a new candidate pool. One benefit of referral bonuses is that they can introduce a company to a previously inaccessible candidate pool. Even without a referral bonus, referrers are likely to refer their friends who are seeking a job and are a strong match for an open position. But with these bonuses, referrers have greater incentives to reach out to people they would not normally consider, such as individuals outside of their closest circle of friends or individuals who are not ACTIVE job seekers — often the most talented candidate pool. This could open up a company's recruiting network to referrers' friends of friends, college alumni networks, or even acquaintances at a competing firm.

Senior-level hires. Employee referrals are especially helping for filling senior-level positions. Firms typically have much less difficulty finding entry- and junior-level candidates. The pool of new college graduates looking for work is much larger than that of experienced leaders looking for work. In addition, successful executives rarely surf other company web sites and send in their resumes in search of a new job. Consequently, word of mouth is one of the best ways to spread information about high-level vacancies among top industry leaders. In addition, the most effective way to get non-active job seekers interested in an opportunity is to have a friend tell them about it. These candidates are much more likely to listen with an open mind to a trusted source than a job advertisement or recruiter.

Advanced filtering. Referrals save recruiters and headhunters time and money because they create an initial filter that eliminates unqualified candidates. Referrers who understand the firm's needs are more likely to refer individuals whom they feel have a chance of getting hired. Also, since most bonuses are paid out only if a candidate gets hired, they further discourage referrals of candidates who are a poor fit. Receiving referrals for qualified candidates also takes much less time than sifting through incoming resumes from public job postings, most of which are not a match.

Demonstrated appreciation. Referral bonuses reward referrers for their input in the hiring process. By making referrals, referrers can derive a sense of investment and accountability from their recommendations. If a referral is hired but ends up not working out, it can reflect poorly on the original referrer. Alternatively, if a referral gets hired and does well, the employee will not only receive a referral bonus reward, but also feel a sense of personal investment in and contribution to the firm's success.

Role of referrals

Role of referrals: Nearly 60% of respondents said that more than half their business comes from customer referrals and “word-of-mouth,” while 30% said that “more than 75%” of their business is from referrals. Over half (53%) of today's architecture, engineering, planning and environmental consulting firms compensate current referrers for referring candidates who get hired. Employee Referral Bonus is a top Recruiting & Retention Tactics according to Workforce Recruiting magazine, August 12, 2004. 1

Tax issues

In US after paying referral bonus you need to fill W-9 or 1099 form. Outsourcing referral tracking software helps to move responsibility to fill those forms to referral tracking service provider.

Comparison of referral tracking web-sites(in alphabetical order)

Feature	FaceContact2	H33	Jobtonic4	Zubka5
Several referrers in a chain	Yes	Yes	No	No
Post on board	Yes	No	Yes	Yes
Distribute through you social network	Yes	Yes	No	No
Finding job candidates	Yes	Yes	Yes	Yes
Finding new clients	Yes	No	No	No
Finding service providers	Yes	No	No	No
Fees	$0 per post + 19,8% on success	$599-$4499 fee + processing fee	$300 per post + 20-25% on success	$50 per post + 20% on success
Reward program for inviting new users	Yes	No	Yes	Yes
Integration with social networks	Linkedin, Facebook	Facebook	Facebook	Facebook\|

Some interesting examples of referral bonuses

A well-known US IVF practice, Genetics & IVF, is running display ads in a free daily newspaper owned by the Washington Post which offer up to US$50,000 for eggs from women aged 21 to 32. Donors can also get a referral bonus of between $500 and $1,500 if they persuade a friend to donate. The eggs will be "donated" to infertile couples. ~ Genetic Crossroads, Feb 23; GIVF Cryobank website

References

Harvard Business Review on Finding and Keeping the Best People, Nov 1, 2001
Reichheld, F.F. (1996). Learning from customer defections. Harvard Business Review, (March-April), 56-70.
Rucci. A.J., Kirn, S.P., & Quinn, R.T. (1998). The employee-customer-profit chain at Sears. Harvard Business Review (January-February), 82-97.
Schneider, B., White, S., & Paul. M.C. (1998). Linking service climate and customer perceptions of service quality: Test of a causal model. Journal of Applied Psychology, 83, 150-163.
Seiders, K. & Berry, L.L. (1998). Service fairness: What it is and why it matters. Academy of Management Executives, 12, 8-20.
Facecontact.com 6
Zweig White's Survey 7
Small Business Attitudes toward OnlineMarketing and Web 2.0 8