The $100K Referral Bonus

Want to turn your employees into top recruiters? Offer big referral bonuses that pay out over time.

The Company:

ghSmart, a Chicago-based management assessment firm for CEOs and investors.

The Practice:

Most companies skimp on employee referral bonuses — despite research that shows retention rates are much higher when referrals come from a trusted source, such as an employee, friend or business acquaintance. ghSmart pays a whopping $100,000 referral bonus — deferred over nine years — that has dramatically boosted talent and retention rates.

The Formula:

1. Understand the logic of the big payout.

   Employee referrals can boost retention rates four times, says Smart. Yet "a lot of entrepreneurs miss the boat on this one,” he adds, and pay little or nothing for internal referrals. ghSmart pays $100,000 over a nine-year period to the referring employee. What works for your company — $1,000 to, say, $10,000 annually — will vary depending on budget and other factors. Whatever bonus the company decides on could be peanuts considering the price of a wrong hire: An average hiring mistake costs 15 times an employee’s base salary in hard costs and productivity loss, according to Smart’s research. A $100,000 employee who’s hired and then quits within a year can cost a company $1.5 million or more.

2. Get everyone on board.

   The company started offering referral bonuses three years ago to all of its employees and has used its internal network to hire 50 percent of its employees this way since. With the hiring success rate of managers hovering at a dismal 50 percent, ghSmart beat the numbers by turning employees into recruiters.

3. Tailor the program to your culture.

   Smart changed the program from a one-time bonus of $10,000 to 10 payments of $10,000 over nine years if both employees stay. So far, he's reporting 100 percent retention — though more years need to pass before the program can be called a total success. Employees have a key incentive aside from the cash: Referring is required for promotion.“It puts an incentive on the referring employee to get the (recruited) employee to stay,” Smart says. "And it costs less (to hire.")