Employee Referrals: The Double-Edged Bonus
Referrals are a win-win situation! The referred party typically gets some sort of special deal while the referring party gets some sort of compensation. Just check out all the newly added affiliate advertisements on the right-hand side. You’ll get some great offers, and I’ll get a nice “thank you” 
There’s never really any backlash for referring others to products or services. Once the transaction has been made, each party continues on their merry ways. If the referred is no longer happy, they can easily leave. On the opposite end, they can start making referrals themselves if they’re very happy.
Most people know the different adages about employment, namely:
“it’s not what you know, it’s who you know”.
Companies spend tons of money and hours recruiting quality candidates. Realizing the power of their existing employee networks, companies rolled out programs offering anywhere from $1,000 to $10,000 for referrals as a way to reduce the applicant pile-weeding and focus concentrated efforts on candidates of interest.
Whatever the amount, they’re generally not small sums to scoff at. Say you make $100k and are offered $10k for accepted referrals – that’s a 10% bonus. What if you’re company had no cap limit, you referred 3 candidates, and all were accepted? You may have made a 1/3 of your annual salary in a month’s time. Not too shabby.
But what happens once those checks hit the bank? Not considering the future outcomes could have some very negative impacts down the road. And there’s two distinctly different scenarios to think about…
Case #1: You’re Referral’s a DUD.
We all have multiple circles of friends. Some mix well with others, some not so much. You may even have dual lifestyles yourself. By day, you’re a sharp, high-caliber employee. By night, you’re a professional flip-cup athlete. To each their own, right?
While bonuses can be enticing, we have to consider our professional credibility. Our referrals will be reflections of us, and whatever that referral does, will be associated back to us. You don’t want the memory of a poor employee haunting your reputation and future development.
In order to prevent falling into this trap, there’s a simple technique. Would you refer this friend if no bonus was offered? Stripping away the monetary reward allows you to reflect on your friend from a strictly professional standpoint and truly analyze their capabilities.
Case #2: You’re Referral’s a ROCKSTAR.
Guessing most people already considered Case #1, but Case #2 may have come as a surprise. Better than me? Yeah right… Sure – you may be a shining, star employee and on the fast track up the corporate ladder, but what if you’re referral is even shinier and on an even faster track?
So remember that part about referrals being reflections of us? Well what happens if they are ROCKSTAR employees? Do they pose a threat to our anticipated promotions or pet projects? Using a machete analogy, did we clear a path for our buddy only to cut off our own toes? 
We may have put ourselves at risk for a few extra dollars only if we’ve recommended someone within the range of our own position. Specify a range because it doesn’t have to be the exact same job, but something in the same department or grouping could also be cause for concern.
Combating this situation is a little harder than the first example. Most importantly, examine and study your referrals success and see what it is that you aren’t doing yet. It’s possible your referral came in with a little extra know-how or slightly more years in the field. Although, it’s more likely they’re going an extra mile after your extra mile. Assessing the future of the friendship may be another matter altogether, but that’s beyond this blog post!
Make sure to “refer” this post for fame & fortune!
And Happy Scouting!
Employee Referrals: The Double-Edged Bonus http://goo.gl/fb/50nIr ( via RT @FinEngr)
RT @FinEngr: Employee Referrals: The Double-Edged Bonus http://goo.gl/fb/50nIr
Very true RT @FinEngr: Employee Referrals: The Double-Edged Bonus http://bit.ly/9yQek9
I never gave much thought of these potentially negative impacts of employee referral. That’s good stuff. Thanks for sharing.
@ Roshawn:
Yup – you could also relate it to your line of work with the recommendation of name-brand drugs. That’s a referral system whereby they try to butter up the doctors with their gimmicky notepads & pens.
RT @FinEngr: Employee Referrals: The Double-Edged Bonus http://bit.ly/9yQek9
How do you feel about sharing the bonus with the referring party?
I have many friends that will debate both sides…that they deserve half the bonus or that you shouldn’t have to share. And then, if you were to share, how do you handle the tax implications? If I got a 5k bonus, and shared half, I’d still be on the hook for taxes for the whole 5k.
I have mixed opininos myself, but curious about your thoughts.
@ Car Negotiation Coach:
Hmm… That is interesting… I did have a friend who was offering 1/2 the referral one time. Probably think you should keep most of the referral. Think this because: you are getting the friend “a foot in the door”, you can help them prepare for the interview/give them the scoop on the interviewers/etc, & they should be able to negotiate their own starting bonus. And, what if they move to something more lucrative & get you referred? Will they return the favor?
Guess it depends on how generous & long-time of a friend you were. I don’t see why you couldn’t them give a small portion 25% (after taxes). 25% is still better than 0% right?
i have fallen into both of these groups. i have refereed absolute rock stars that almost made me look bad. and i have also refereed duds, where it almost effected my friendships with the individual.
more than the referral bonus you need to take into consideration over all company goals, the culture and not just look at the money but the full perspective to set you, your referral and the company up for success.
@ James:
Hard to predict how our friends will pan out in the work environment huh? Great points – if your friend aligns with the company goals & culture, then the referral can be a great success. This is one of the few better experiences I’ve had myself. It’s also very rewarding to find that great fit for everyone.
I am always scared the referral will be a dud OR that the referral won’t like the job he is offered and again I look like an ass when he quits in 3 weeks.
@ Evan:
Didn’t even think to address that! Whether they’re the dud or rockstar, if they dip out after only a short time – it STILL makes you look bad!
I’ve actually made TWO referrals under the same program and then failed to get paid the promised bonus ($4000 total) when they were hired on very flimsy technicalities.
My dilemma was whether or not to vigorously pursue the case with my company. In the end, I decided it wasn’t worth it in the long run to potentially poison my otherwise very good relationship with my employer.
Rest assured I won’t be making any more referrals though.
Best,
Len
Len Penzo dot Com
@ Len:
Yikes, that doesn’t foster employee loyalty. You played the hand well I’d say. No worth jeopardizing an otherwise good relationship for the few grand.
Hello,
My name is Neccia Celli and I work for Newstex.com. We’ve reviewed Engineer Your Finances, and think it might be a good fit for syndication with Newstex! If you’re interested in learning more, please send me a message at ncelli@newstex.com.
Thank you,
Neccia
Employee Referrals: The Double-Edged Bonus | Engineer Your Finances: http://bit.ly/cfgnHV via @addthis
@ ALL:
Thanks for retweeting!
Catchy name for employee referral scheme?