Lindsay Olson

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The Candidate Referral Bonus Debate

2892058635 da341cba5f The Candidate Referral Bonus Debate
Several times in the past few months during a recruiting calls I’ve been asked if I would offer a referral fee. By no means is this new. Back in my recruiting hard-to-find semiconductor engineers days, this question came up all the time. And still, every time, without fail, I hang up the phone a bit more annoyed than the last time.

I question the person’s professionalism. I feel bad that the referral might not have the opportunity to hear about a career changing opportunity because his friend wants to make some cash off his name. And then I wonder if the referrer did get a recruiter to pay him for a referral if he would ever tell his friend he only recommended him for the job because he got some cash out of it. It just feels dirty.

I don’t ask the doctor, the design firm, the accountant, the babysitter, or any other professional service provider to slip me a cash bonus when I refer someone to them. I’m not their hired sales agent. I make a referral because the service provider has earned my confidence and my friend trusts that I have his best interest in mind.

I know that plenty of recruiters out there pay referral fees and that the business model works for them. I also know in 13 years  of agency recruiting, I have never paid out a referral fee and a majority of our placements are candidates who have been referred to us directly or indirectly.

Maybe I’m missing something completely…

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6 Comments - Add yours!

Marc Luber (June 1st, 2010)

Interesting post, Lindsay. I was an attorney recruiter for several years in Los Angeles until the end of 08. I never liked when people asked for referral fees, BUT I have to admit that I did pay them sometimes. I never dangled them as a carrot to get referrals….but when I made a successful placement with a referred candidate, I felt that I was making so much money off the goodwill and trust of the referrer that I had to do something for them as a thank you. Receiving this thank you (whether it was a fee, a restaurant gift certificate, etc) was typically a surprise to the referrer because again, it wasn’t a quid pro quo situation…it was more of a thank you. When people proactively asked me for referral fees, then like you, I had to question their motivation. What I found more disturbing than this was when candidates would ask me if I would pay THEM fees for working with me! They would occasionally say that other recruiters were willing to kick back some of the placement fees to the candidate. I felt that was both dirty AND a violation of the ethics of legal recruiting.

Lindsay Olson (June 8th, 2010)

Marc, Wow, asking for a cut on their own placement. I feel like I need a shower after even thinking about that!

Craig Silverman (June 8th, 2010)

I have offered and paid referral fees all the time. There is nothing dirty about it, just a professional courtesy and a nice way to say “thank you.” People often refer again and again when thanked and shown they are appreciated. For example, our carpet cleaner gives us $50 off every time a referral we passed them uses the service, It is widely accepted as an ok thing to do and certainly appreciated by anyone who ever received a referral bonus. Companies often pay their employees a referral bonus if they send HR a candidate who gets hired, why not? A fee of $1000 is better than paying a recruiter $20,000 in their eyes. When an agency is going to earn a fee of 20%-30% for a candidate they supply it is aok in my book to pay out a little to the person who gave you the candidate, typically $500-$1000 based on a average placement fee of $12000 (20% of $60K). There is no right or wrong here but in my book there is no free lunch and expecting or asking for something for nothing does not seem right either. It’s better to offer something than to have to be asked for it so a good thing to do is to create a plan that can be documented and put in place to maintain some level of equality or fairness.

Craig Silverman

Lindsay (June 8th, 2010)

Craig, I see your point and I don’t think there is a right or wrong either. I know plenty of recruiters do it and it works for them. I personally have never felt like I needed to and if a referral bonus is not something I bring up or advertise, then yes, it feels dirty if someone comes out and asks for it. I couldn’t imagine holding back a friend or a professional contact I respect from hearing about a great opportunity because I’m not offered a cash bonus.

It’s not a free lunch. Many times the people who refer the most candidates or new clients along are people we have helped in their job search either by presenting them for matching searches, placing them, or giving them advice about their resume , next steps or interviewing – even for jobs not through us.

Jennifer Graham (July 21st, 2010)

I just had this same debate with my boss this morning. He suggested we start offering referral fees for a difficult search we are working on. I told him that although it may be legal, I consider it unethical. In many of our contracts with clients, particularly with large banks, there are was a clause stating that we were not to pay out a referral fees. Anyway, I just wanted to share that I have not and will not ever offer a referral fee and agree with you that it would make me feel dirty if I did.

Mike Schinkel (November 9th, 2011)

“I don’t ask the doctor, the design firm, the accountant, the babysitter, or any other professional service provider”

The big difference between those people and a recruiter is that those people are paid by the hour or by the project that takes lots of hours. A recruiter is paid by placement. Depending on many things, a recruiter could make a $20k placement fee after months of work, or they can make their $20k after what amounts to a single phone call. I don’t know many careers where you can potentially make so much for a small amount of work (real estate agent is another.)

So especially with skills in high demand, isn’t it reasonable that if someone gives you the name that you need to close that high dollar sale you give them the courtesy of a reasonable referral fee to acknowledge their contribution to your high dollar sale? Yes, most of the time it’s not that easy, but if a recruiter networks with the right connectors it can be that easy at times. Why should the recruiter get such a large financial windfall when the connector gets nothing financial in return?

Where’s the quid-pro quo?

P.S. I just referred a really good candidate to a recruiter for a position she can’t seem to fill, and *then* I asked about their referral policy. I think providing a referral fee would be the courteous thing to do.

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