Do Referral Bonuses Create 'Corporate Inbreeding'?
March 17, 2009 — The blog was a little quiet last week because I was in Southern California for spring break with my kids. So, in between the beach, Disney and Lego, I caught up on a small amount of reading, which is going to give me some good fuel for blog posts. (On an entirely non-total rewards note, I'm about ¾ done with the book Three Cups of Tea, which I cannot recommend highly enough. Outstanding).
Anyway, bonuses are a hot topic at the moment, it seems. The radio and TV airwaves are really buzzing today with the news that AIG is going to pay tens of millions in bonuses to employees for 2008 performance. I predict that story will be gasoline for many different blog fires this week, and potentially cause Congress to look at the practice of employment contracts more closely.
But in my March issue of Inc. magazine, I saw reference to an interesting notion advanced by Editor-at-Large Leigh Buchanan. She wonders if the common practice of referral bonuses for employees to bring in people they know could actually work against the overall health of a workplace — from a diversity-of-views standpoint. Her argument:
"Biodiversity is one sign of a healthy ecosystem; mutts tend to be sturdier than purebreds. Companies that hire lots of people who know one another — because they attended the same schools or play golf together every weekend or used to work together someplace else — may reduce the diversity of their workforces' experiences and perspectives. Innovation flourishes in the interstices of unlike ideas."
To her credit, Buchanan acknolwedges some of the benefits of referral bonus programs, such as "those who play well together are likely to work well together," and "an employee understands that a friend's performance affects their own reputation," but I have to admit that until now, I have never challenged the idea of a referral bonus program. It just made sense to me that a handful of staff interviews plus a current (good) employee who is willing to vouch for the quality of another person is often going to create a better result than simply a handful of staff interviews.
But Buchanan's thoughts are now making me wonder. And the potential problems created by a referral bonus program probably also depend on the position — whether the job requires creativity or not, for example.
E James Brennan, III Senior Associate Member Since: 4/19/1979 Comments: 406
Referral bonuses are no more problematic than incentives to your recruiters. Why assume that a referral is a clone? A referral is no more likely to pollute your diversity commitment than a campus recruiting trip to schools you've never visited or randomly selecting one of the thousands of resumes in your email in-box. My friends span very broad range of demographic chararacteristics; but I'll admit that it's very dangerous to hire a friend or relative, because work-conflicts could imperil your personal relationship. OTOH, some of my best subordinates have been (a) close and dear friends or (b) people I simply couldn't stand, on a personal basis.
Frank Giancola, SPHR Researcher Writer Member Since: 12/1/2004 Comments: 197
I imagine that there are advantages to referral bonuses--- less money and time spent on recruiting and candidates who are a known quantity and are a good fit for the culture. They do increase the odds for inbreeding and group think.
Paul Weatherhead Program Manager Member Since: 5/1/2000 Comments: 553
A related question might be why use referral bonuses when there is so much talent in the labor market right now? A company using a large share of the HR budget on referral bonuses may need to get some fresh thinking on their recruiting strategies.
March 17, 2009 — The blog was a little quiet last week because I was in Southern California for spring break with my kids. So, in between the beach, Disney and Lego, I caught up on a small amount of reading, which is going to give me some good fuel for blog posts. (On an entirely non-total rewards note, I'm about ¾ done with the book 
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