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How do employee referral bonus programs typically work?

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Quick Answer

In an employee referralpProgram, or ERP, employees who refer friends, family or colleagues receive some type of bonus from their employers. This bonus often includes a financial reward but is not limited to that alone. Some ERPs pay out rewards in single lump sums only after the people referred have been hired and remain with the companies for specified periods of time. Other programs split the rewards into portions, allotting partial payouts at different milestones.

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Full Answer

An employee referral program may be an essential part of a company's overall recruiting strategy. There are numerous advantages to having a well-oiled referral program to recruit new employees, including increased retention rates for referred employees, lower costs of recruitment and the creation of a positive culture within the company. For these reasons, it is imperative that incentives for employees to refer from their network are commensurate with the company's goals.

One way to accomplish this is to offer differential incentives for referrals with certain skill sets or levels of experience. For example, if a company needs mid-level managers and senior information technology staff, rewards for referrals to those positions should be higher than referrals to positions already well-staffed.

Although the main reward an employee receives for a referral is financial remuneration — along with the satisfaction of helping a friend and employer — other forms of recognition can be just as important. Listing top referrers in the company newsletter or taking them to lunch also goes a long way to creating positive attitudes toward the referral program. Expanding this to a department-wide level and giving a prize to the department with the most successful referrals is another way to increase participation.

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