I posted about a year ago on my doubts about offering employee referrals. I’ve seen them badly abused before where a single employee made 20k+ on referrals many of which turned out to be less than great hires. Apparently Joel who spends a lot of time thinking about how to hire the smartest programmers has a similar opinion:
But the real problem with employee referrals is what happens when recruiting managers with a rudimentary understanding of economics decide to offer cash bonuses for these referrals. This is quite common. The rationale goes like this: it can cost $30,000 to $50,000 to hire someone good through a headhunter or outside recruiter. If we can pay our employees, say, a $5000 bonus for every hire they bring in, or maybe an expensive sports car for every 10 referrals, or whatever, think how much money that will save? And $5000 sounds like a fortune to a salaried employee, because it is. So this sounds like a win-win all-around kind of situation.
The trouble is that suddenly you can see the little gears turning, and employees start dragging in everyone they can think of for interviews, and they have a real strong incentive to get these people hired, so they coach them for the interview, and Quiet Conversations are held in conference rooms with the interviewers, and suddenly your entire workforce is trying to get you to hire someone’s useless college roommate.
And I will admit I have gotten two referral rewards at past companies. In both cases I referred in really good hard working programmers who helped make the companies successful. In one case I split the referral bonus with one employee and in the other I just had HR turn over the whole referral bonus to the employee. The point is you want to work with smart people who are going to help the company, not refer in any old acquaintance who might make a decent employee.