Fixed-Fee Referral Invariance
RCTClinical Trial
Increasing flat financial payments for employee referrals expands the total volume of job applicants but fails to improve candidate quality or skill composition.
Picture this
Imagine offering a flat $50 reward versus a flat $100 reward to anyone who brings a guest to a party. A higher cash reward gets more people to bring guests through the door, but because the payout is guaranteed regardless of how well the guest behaves, hosts bring whoever is closest rather than searching for the most polite or entertaining guest.
What the evidence says
Increasing fixed finder's fees from Rs 60 to Rs 110 increased referral participation by 8 percentage points (p < 0.10) but had zero statistically significant impact on referral cognitive test scores (p = 0.865) or referral relationship composition.
- Who was studied
- N = 310 male original labor market participants in Kolkata, India.
- How
- Heckman two-step selection model utilizing daily rainfall variations as an exclusion restriction to test varying flat finder's fees (Rs 60, Rs 80, Rs 110).
What to do
Do not increase flat monetary referral bonuses under the expectation of hiring higher-quality talent, as fixed fees alter applicant quantity without altering applicant quality.
From the source
"Across all specifications, the joint p-values of the overall effects of fixed fee and interaction terms are never close to significant."
468 Job Referrals in India AER Dec12.pdf