Performance-Contingent Referral Incentives
RCTReview
Standard fixed-fee job referral programs fail to incentivize existing employees to screen for high-ability job candidates. When referral rewards do not depend on candidate output, workers default to referring socially close connections or family members regardless of skill.
Picture this
Imagine a scout paid a flat fee to bring any player to a team tryout versus a scout paid a bonus only if the player wins a match. The flat-fee scout brings a family member to help them earn quick money, whereas the bonus-motivated scout searches their broader network for the best player available.
What the evidence says
High performance pay increased the likelihood of referring coworkers by 8 percentage points and reduced relative referrals by 7 percentage points, while varying fixed fee amounts had zero effect on referral quality.
- Who was studied
- 562 original participants and 407 referrals (adult males aged 18 to 60) in Kolkata, India.
- How
- Randomized Controlled Trial (RCT) in a laboratory setting with 5 treatment arms comparing fixed pay (Rs. 60, 80, 110) against performance-indexed pay (Rs. 0-20, 0-50).
What to do
Structure employee job referral bonus contracts so that a significant portion of the payout is contingent upon the referred candidate reaching specific performance or productivity benchmarks rather than mere hiring.
From the source
"In contrast, when individuals were offered performance pay, they were more likely to refer a higher skilled connectionOPs in the high performance pay treatment were 7 percentage points less likely to refer relatives and 8 percentage points more likely to refer coworkers."
Leveraging Social Networks for Job Referrals in India.pdf