At the Expense of Quality

Abstract

Many organizations use employee referral programs to incentivize employees to refer potential applicants from their social networks. Employers frequently offer a monetary bonus to employees who refer an applicant, and this is often contingent on whether the person is then hired and retained for a given length of time. In deciding whether to refer someone, referrers face a potential role conflict, as they need to balance their motivations for helping connections find job opportunities with concerns regarding their reputations with their employers. To the extent that monetary incentives shift an employee's considerations away from finding the best matches for the employer, referral bonuses may increase the chances that lower-quality candidates are referred. Using a survey vignette experiment, we find that even a small referral bonus increases the likelihood that referrers will refer lower-quality candidates, and they are more likely to refer people they do not know well. We further discuss theoretical and practical implications regarding the efficiency of incentivized referral programs in producing quality applicant pools for employers.