Is it appropriate to offer a “finders' fee” to existing staff when looking for new staff?

Question

A lot of big companies use recruiters to find new hires, and there's obviously an associated cost.

Existing staff are likely to know people looking for work through their professional networks. The company could potentially save significant money if they found people this way.

Obviously there are conflict-of-interest concerns to consider, but in general, do you think it's appropriate for a company to offer a finders' fee for referring new hires?

Answer 1

We've done this before and it worked out well. Just make sure that the bounty is paid only after the new hire demonstrates that they'll be around for a while. A $1500 bounty is not out of the question. $300 when they get hired, $1200 after three months of employment.

The only glitch is (sometimes) hiring close friends of existing employees doesn't work out very well. You don't want islands forming in a team. If possible, try to make sure that the two don't work together very closely, at least for a while.

The other thing to watch out for is that work can sometime strain relationships. Sometimes, for instance, you just need to take a sick mental health day. Your friends are usually privy to this, when they work at the same company and depend on you .. well, it can get sticky. A policy against hiring immediate family members of other employees is usually wise. Good friends can (sometimes) almost qualify as immediate family, so watch out.

Answer 2

If your company is having difficulty recruiting and retaining the talent your company needs to survive, succeed, and thrive, there is ALWAYS a reason, and the most common reason is that you not offering to pay enough money.

If you are attempting to pay significantly below the going rates, and your company is a "me too" outfit, doing the same thing everyone else is doing, you're going to have trouble. If your company is an outstanding place to work, doing SERIOUSLY cool stuff, you MIGHT be able to pay a little lower - but you are going to have difficulty even then.

If your company is paying going rates, but is known in your area and industry as a terrible place to work, you are going to have serious recruiting and retention problems.

And there's this. If your company is a great place to work, doing seriously cool things, AND is successful enough that you can and do pay ABOVE market rates, you will have your pick of applicants. (Your competitors will hate your guts, however, and will do anything they can, legal and otherwise, to put you out of their misery.)

Yes, it can be appropriate to offer "recruit-a-friend" bounties, but it may say something not completely good about your company when you do it.

When your employee talks to his friends, what is he going to say when the friends ask about pay scale, raises, benefits, working conditions? If your employee has to tell your friend that there haven't been any raises in three years, and they don't expect any raises at any time in the foreseeable future, if your employee has to tell your friend about high rates of mandatory free overtime, if you have a local reputation for boom-and-bust hire-and-fire cycles, offering bounties is probably not going to do you a lot of good.

Answer 3

Yes

All companies I've worked in have had this. While it's not a substitute for good wages and benefits, it will make people think more than once about possible hires in their network or among their friends. If there's a shortage of job applications coming in, this can make a difference.

There's no guarantee, of course. Employees may not want to recommend people, but then your problem lies elsewhere.

Answer 4

It's a nice incentive, but it doesn't replace good regular hiring practices. You can save a bit of money on the initial screening process if a current employee recommends someone, but you still need to interview the candidate, you still need to train them and you still need to put them on probation, etc.

Given what some recruiters will charge, though, you can still save quite a bit of money in skipping that step, and I see no reason why those saving should not be passed on to the employee who recommended the candidate.

Answer 5

Lots of big companies offer referral bonuses to their staff for recruits that successfully retain their position after the probation period.

The problem occurs when the staff members involved with the recruitment process have a financial interest in the outcome (ie: they would receive a referral bonus), so it is common practice that anyone who nominates a candidate cannot be involved in the interview or selection process.