BrainTrust Query: Updating the Referral Bonus

Feb 03, 2012

Through a special arrangement, presented here for discussion is a summary of a current article from Retail Contrarian, the blog of the Dynamic Experiences Group.

We all know that finding and retaining great people is a vital element for any experience-based store or company. Who better to help us find the people who can do this than the people who are already doing it?

True, most retailers have some type of current employee referral program, but most of them are ineffective. How do you make them more effective?

Here are some things to consider:

1. Substantially increase the amount of your referral bonus. Make the payout such a WOW amount that most of your employees are always recruiting. Forget $100 or $250 payouts … go big!

Here’s an idea. What if you paid a $1,000, $1,500, or higher referral bonus for every new sales associate? Think about the cost of an open position or high turnover.

2. Change the way you pay out. Most companies only pay a bonus after the new employee makes it past their probationary period. Employees need more instant gratification.

With a $1,000 bonus, I would pay the employee who made the referral $250 on the referred employee’s first day. I would pay another $250 if the new hire is still there after 90 days.

Here’s the big change I would make. If the referred employee is still with the company after one year, the referring employee gets a $500 bonus. That is motivation to not only find good people, but to help them be successful in their job.

3. Keep championing your program. It’s vital that your referral program remains front and center to your team. It takes more than a poster or annual announcement to keep the program viable. Publicize every payout.

4. Pay managers to develop new managers. This is a concept Chipotle uses. They pay a developmental bonus of $10,000 for managers who bring an employee up through the ranks into management. The manager gets $5,000 when the person gets promoted, and another $5,000 after the employee has been in the position for six months.

Check out the result. This focus on developing staff and promoting from within has had a significant impact on Chipotle’s turnover at the management level. For salaried managers, turnover dropped from 52 percent to 35 percent, and entry-level hourly managers went from 111 percent to 47 percent. Sounds like that bonus is also paying for itself.

Discussion Questions: What are the pros and cons of referral bonuses at retail? What recommendations do you have to make sure such programs are more effective?

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3 Comments on "BrainTrust Query: Updating the Referral Bonus"

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Steve Montgomery
10 years 3 months ago

When determining the amount to pay out as a referral bonus, we encourage clients to look at what their cost of replacement is — both hard and soft. Once this amount has been determined, they can then determine what portion of that they would like to invest in having an employee referral program or updating their existing program. I agree that the timing of the payout is critical to the program’s success. While a portion should be deferred, we have found that programs without any immediate payout generally don’t create much excitement.

Mel Kleiman
10 years 3 months ago
A couple of great suggestions that have been proved to work and a couple of additional comments. 1. Employees that come from referral usually last longer for two reasons. a) They already have a friend at work. b) They know exactly what they are getting into. There are no surprises because their friend has told them about the organization, the job, and the boss. 2. The biggest mistake, as the article points out, is that most referral programs wait too long to reward the person who made the referral. 3. I disagree about the size of the reward. More money doesn’t make for better referrals. It just means more referrals, less quality. 4. Why not instead of money, or along with the money, make the giving of the reward fun. For example, pick an envelope and whatever is in the envelope, the person wins. 5. Make sure to give the reward out in public; don’t put in it a paycheck. It you do, you get no bang for the bucks you are spending. 6. Any… Read more »
Ed Dennis
Ed Dennis
10 years 3 months ago

While all of the above could be valid, the single greatest recruiting tool is to be a great place to work. If an employer builds a company where the vision is focused, where employees are dedicated, then good prospects will be a dime a dozen. If you have a crappy company and everyone acts like public employees then you will have to give recruiting bonuses, retention bonuses and everything else because your employees will constantly be looking to jump ship and will at the first opportunity. Besides, there are thousands of very capable people sitting on the sidelines right now. If you want a great employee, just advertise, but be very specific about what you will consider and be prepared to do some work. Hiring right has never been easy, but it is the most valuable time and money a company can spend.


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