Endogenous Incentive-Driven Referral Participation
RCTClinical Trial
Employers offering performance-contingent referral contracts often do not realize that performance incentives alter not only candidate choice but also which existing employees choose to participate in referring peers.
Picture this
Imagine a school offering teachers a cash bonus if a student they tutor passes an advanced exam. Teachers who know they have brilliant students will enthusiastically sign up for the bonus program, whereas teachers without strong candidates will skip the program altogether because their expected payout is low.
What the evidence says
High-ability participants facing high-stakes performance pay were 16.2 percentage points more likely to return with a referral (p < 0.05), while low-ability participants showed no statistically significant increase in participation (3.0 percentage points, p > 0.10).
- Who was studied
- N = 561 male labor market participants in Kolkata, India.
- How
- Randomized controlled trial analyzing participation rates (returning with a referral) across fixed vs performance-contingent pay schemes, interacted with standardized participant cognitive scores.
What to do
Deploy performance-contingent referral bonuses to self-select high-performing existing employees into the referral pipeline while reducing participation from low-performing employees.
From the source
"High-ability participants are more likely to make a referral if they receive performance pay than low-ability participants, suggesting that the expected return to performance pay is larger for high-ability participants."
468 Job Referrals in India AER Dec12.pdf