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Determining the most effective rewards to motivate employee referrals, part two

In part one of this article, Dr. John Sullivan writes about the necessity of a formal referral program, using data to find the best incentives and motivating referrals without using cash rewards. This article continues his advice.

By Dr. John Sullivan, professor of management, San Francisco State University

What is the right amount to offer?

If you’re going to offer monetary rewards, here are some approaches to consider.

  • Experiment with reward amounts — there is no magic payment amount, so use a data-driven approach. Experiment and then track what works and what doesn’t. Periodically adjust your bonus amounts, because offering the same rewards without refreshing them almost always gets stale. Periodically experimenting with different approaches can allow organizations to accurately scale their incentives and adjust rewards periodically, based on the current response rate.

    Start low – start low and work your way up in reward amounts rather than starting high (it’s hard to cut reward amounts without employees noticing).

  • There are limits – often after you reach $1,500, additional bonus amounts have a low ROI.
  • Pay more for key jobs – referral amounts usually reflect the salary for the job. Obviously high-impact jobs should get a higher reward amount.
  • Vary rewards with the unemployment rate – as the unemployment rate increases, you need less money across the board in order to get good referrals. The reverse is also true.
  • Benchmark your competitors – with social media connections, your employees will know and compare your firm’s referral rewards to the amounts that your competitors offer. You don’t have to match their amounts, but you do have to be in the ballpark.
  • Offer a “hard-to-hire” or “kick-up” bonus supplement – as a general rule, the harder the job is to fill, the higher should be the reward. If you’re having difficulty filling an individual hard-to-fill job, offer a higher “kick-up” bonus or contest prize for a brief period of time in order to see if it makes a difference. In some cases, the hiring manager is willing to pay this bump-up bonus.
  • Stunning bonuses can get everyone’s attention— although rewards over $5,000 are unusual, in extreme cases rewards of up to $25,000 have been offered.

Other powerful reward options to consider

In addition to varying the amount of reward, there are some other reward-related options to consider. They include:

  • Offer a charity donation option – some employees are concerned about the appearance of making referrals for self-enrichment. As a result, offer the option of donating part or all of the reward to charity. This option can excite those employees who are more concerned about helping others and being altruistic. The charity option is especially effective when there is a potential conflict of interest or when senior executives are involved in making the referral.
  • Consider a “prize patrol” approach to celebrate referrals — consider making a public display and celebration out of the process of rewarding an individual referral prize. This public display excites and it may cause competitive individuals to increase their referral efforts.

    “Gross up” your bonuses — grossed-up bonuses (where the employee’s tax on the reward is prepaid) can be stunning because they allow employees to see, receive, and keep all of the reward.

  • Supplement the reward based on performance – consider offering a supplemental reward for referring those who turn out to be top performers (based on their above-average performance appraisal score at 6 or 12 months after hiring). Also consider increasing bonuses for diversity hires, for longer-than-expected retention or if the hire happens to be a key employee from your top competitor.
  • Reward for names only — often top employees are extremely busy and do not have the time to capture an updated resume from a hot prospect. Consider offering a small reward (up to $100) for simply providing the names of obviously qualified candidates. In some cases, top employees are willing to provide “names only” referrals without expecting any bonus. Simply having the name of a top performer is sufficient because regular recruiters can easily handle the follow-up and the selling of the prospect.
  • Reward employees for referring top prospects who are interviewed – consider offering a small reward to employees (up to $140) for each of their referral candidates who are “good enough” to be invited in for an interview or who make it to the finalist list (even though they are not hired). This can further excite employees who “come close,” but don’t actually have their candidate hired.
  • Offer small rewards for “first-time” referrals – consider a small reward for employees who participate in the referral program for the first time, whether their referral is hired or not. Potential small rewards might include a $25 gift, movie tickets or a Starbucks card.
  • Offer small rewards to your referred applicants — some firms reward the applicant who was referred. To thank them for their time, consider offering small rewards or product samples for all referrals who are brought in for an interview.
  • Offer rewards to non-employees – expand your referral pool by offering to pay non-employees for referrals (i.e. contract employees, temps, vendors, corporate alumni or retirees). If you do that, remember that you must report those payments to the IRS.
  • Reward managers for meeting their team quota – measuring, recognizing and rewarding managers for reaching the referral goals assigned to their team is a high-impact approach to consider.

Do not do these things

  • Don’t pay equal bonuses — prioritize jobs in the referral program because all jobs do not have the same business impact. All key jobs are eligible for the referral program and jobs that are easily filled using traditional recruiting channels are often excluded from the referral program.
  • Don’t delay payments – delaying payment of the reward is a huge mistake. Pay immediately and don’t make receiving the reward contingent on anything, unless you want to purposely kill motivation.

Final thoughts

There is no “one-size-fits-all” approach to offering referral motivators. Instead, identifying and then “dialing in” the most effective motivators requires constant data-gathering. Closely matching rewards and recognition to employee interest and expectations is far more important than the amount of the reward. And whether you use monetary rewards or not, make sure that your employees see the direct benefits to them and their team of becoming 24/7 talent scouts.

This article originally appeared on ere.net and is used here with permission.


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