Motivating employee referrals: The interactive effects of the referral bonus, perceived risk in referring, and affective commitment

• Author: Steven D. Schlachter,Jenna R. Pieper,Jessica M. Greenwald
• DOI: http://doi.org/10.1002/hrm.21895
• Date: 01 September 2018
• Published date: 01 September 2018

ORIGINAL ARTICLE

Motivating employee referrals: The interactive effects of the

referral bonus, perceived risk in referring, and affective

commitment

Jenna R. Pieper

1

| Jessica M. Greenwald

2

| Steven D. Schlachter

1

1

Department of Management, College of

Business, University of Nebraska–Lincoln,

Lincoln, Nebraska

2

Department of Management, College of

Business, St. Ambrose University,

Davenport, Iowa

Correspondence

Jenna R. Pieper, Department of Management,

College of Business, University of

Nebraska–Lincoln, P.O. Box 880491, Lincoln,

NE 68588-0491.

Email: jpieper@unl.edu

Research has provided compelling evidence that employee referrals result in positive outcomes

for organizations and job seekers, but it has been limited on how organizations can increase

the likelihood of obtaining employee referrals. Using the theoretical lens of social exchange

theory and tenets from expectancy theory, we tested two common assumptions of most

employers: A referral bonus motivates employees to refer, and higher bonus amounts incite

greater likelihood of referring. We theoretically developed and tested a model integrating the

effects of perceived risk in referring and affective commitment and their interactions with the

referral bonus to better explain the likelihood of referring. Results largely supported our predic-

tions. Referral bonus presence, referral bonus amount, and affective commitment positively

related to likelihood of referring, while perceived risk in referring negatively related to likeli-

hood of referring. The findings also suggest that larger referral bonuses can help offset per-

ceived risk in referring and low affective commitment levels. We contribute to the literature by

developing theory, expanding the scope of the current referral literature, and offering a quanti-

tative examination of previously theorized variables in the referring process. We conclude with

suggestions to practicing managers on ways to improve the motivating potential of their

employee referral programs.

KEYWORDS

affective commitment, employee referrals, recruitment, referral bonus characteristics, risk in

referring

1|INTRODUCTION

Recruiting the right people for the job has been a pillar of cultivating

and maintaining organizational success. However, organizations'

recruitment activities are not always fruitful because they often lead

to poor-fitting hires who voluntarily quit or are involuntarily termi-

nated due to poor performance (Arthur, Bell, Villado, & Doverspike,

2006; Kristof-Brown, Zimmerman, & Johnson, 2005; Schneider,

1987). Because the cost of recruiting and training new employees is

estimated to be 38% of the departing employee's annual wage

(Morey, 2007), deficiencies in the recruiting process can be quite

expensive. Recruitment costs, while varying across industries and

jobs, can accumulate in general through advertising, job fair expenses,

and third-party agency or recruiter fees, as well as salary and benefits

for the recruitment team. An organization, therefore, must choose

wisely when deciding on its menu of recruitment sources and would

be best served by finding a recruiting method that both minimizes

costs and results in sound hires that fit well in the organizational

environment.

A popular approach to resolving this dilemma has been the use

of employee referral programs, which are designed to encourage cur-

rent employees (referrers) to match open positions with qualified can-

didates in their social network (referred candidates/hires). Employee

referrals are attractive because many of the costs associated with

formal recruitment practices can be avoided (e.g., advertising and

third-party recruiter fees). In addition, because the labor market

encompasses much uncertainty (Caggiano, Castelnuovo, &

Groshenny, 2014; Rees, 1966; Storesletten, Telmer, & Yaron, 2001),

DOI: 10.1002/hrm.21895

Hum Resour Manage. 2018;57:1159–1174. wileyonlinelibrary.com/journal/hrm © 2017 Wiley Periodicals, Inc. 1159

organizations can leverage their employees' social networks to reduce

informational asymmetries in the hiring process and facilitate better

matches.

Because no organization or individual can acquire complete infor-

mation in the job search process (Sattinger, 1995; Stigler, 1962), mis-

fit hires may occur (Connelly, Certo, Ireland, & Reutzel, 2011), and

those individuals often experience discomfort, unpleasant emotional

reactions, and incompatibility with the organization (Billsberry & De

Cooman, 2010; Follmer, Talbot, Kristof-Brown, Astrove, & Billsberry,

in press). When hiring, the organization assumes risk about a candi-

date's potential behaviors and attitudes, while the candidate assumes

risk about the actual nature of the job and the organization. Referrers

can mitigate the uncertainty that underlies these risks. Unlike more

traditional recruitment mediums (e.g., online job advertisements),

referrals from employees within the organization can provide poten-

tial candidates with direct knowledge about the organization's behav-

ioral and cultural expectations. This information acts similarly to

realistic job previews (Wanous, 1980), allowing referred hires to enter

into employment with more complete information thanks to the

referrer's insights.

Beyond this information advantage, employee referral programs

may attract candidates with attributes similar to those of the referrer

(Bayer, Ross, & Topa, 2008; Rees, 1966; Taylor & Schmidt, 1983; Ull-

man, 1966; Williams, Labig, & Stone, 1993), which can act as a pre-

liminary signal to the organization about the applicant's quality. An

individual's social network tends to be homogeneous regarding

behavioral and intrapersonal characteristics (McPherson, Smith-

Lovin, & Cook, 2001). Intuitively, this similarity is beneficial in that

the referrer has previously passed through the hiring stages and

secured a position at the organization, suggesting that the referred

candidate, who is part of the referrer's social network, may be more

likely to gain employment with the organization. Such similarity also

makes it easier for organizations to identify candidates who are com-

patible with its value system, reinforcing person–organization fit

(Kristof, 1996).

Employee referrals also increase the likelihood of a successful

hire (Brown, Setren, & Topa, 2012; Fernandez, Castilla, & Moore,

2000; Pieper, 2015), decreasing wasted resources during the hiring

process. The literature provides consistent evidence that organiza-

tions benefit from referred hires' greater retention rates and higher

performance than nonreferred hires (Barber, 1998; Breaugh &

Starke, 2000; Brown et al., 2012; Burks, Cowgill, Hoffman, & Hous-

man, 2015; Castilla, 2005; Pieper, 2015; Rynes, 1991; Rynes &

Cable, 2003; Rynes, Heneman, & Schwab, 1980; Schwab, 1982;

Taylor & Collins, 2000; Zottoli & Wanous, 2000). Referred candi-

dates also benefit; they are more likely than nonreferred candidates

to receive a job offer (Fernandez et al., 2000; Holzer, 1988; Van

Hoye, van Hooft, & Lievens, 2009) and be hired (Brown et al.,

2012). Additionally, a referral from incumbent employees is a rela-

tively low-cost and efficient job-seeking mechanism to help job

seekers locate a position (Marsden & Gorman, 2001). Given this evi-

dence, it would thus seem natural that organizations and job seekers

would prefer to use employee referrals if given the opportunity.

However, the key piece—the referrer—must be motivated to refer

for these aforementioned benefits to occur. Thus, an important and

unanswered question arises concerning how organizations can moti-

vate employees to refer.

Recent literature has given some theoretical attention to psycho-

logical factors that may affect an employee's likelihood of referring.

Positive attitudes toward the employer, such as affective commit-

ment (Bloemer, 2010) and job satisfaction (Van Hoye, 2013), have

been proposed as possibly influencing the likelihood an employee

would recommend the employer to others (Shinnar, Young, & Meana,

2004). An employee also may recommend an employer out of a pro-

social motive to help a friend find a respectable job or to help the

employer find a good employee (Van Hoye, 2013). While these stud-

ies have been influential, little empirical support has been provided to

support their claims, and little attention has been given to the actions

organizations take to motivate their employees to refer and the effi-

cacy of such actions in affecting employees' motivations to refer.

The most common and popular action taken by an organization

to entice employees to refer is offering employee referral bonuses

for successful hires. A 2014 WorldatWork report indicated that 63%

of 713 surveyed firms had employee referral bonuses in place, rang-

ing from $250 for entry-level positions to $5,000 or more for

executive-level positions (WorldatWork, 2014). This percentage has

remained steady over the past decade, as the Society of Human

Resource Management's (SHRM) survey in 2001 reported a similar

figure (SHRM, 2001). Referral bonuses are based on the assumption

that offering a financial incentive will incite behavior. However, the

efficacy of the referral bonus in increasing the likelihood of referring

remains to be fully understood; prior work has tended to narrowly

conceptualize the referral bonus construct and has rarely emphasized

the exigencies that may be integral to its effectiveness.

In response, we leverage social exchange theory (SET; P. M. Blau,

1964) and expectancy theory (Vroom,1964) to explore a more nuanced

explanationof the motivating potential of the referralbonus. We argue

that referral bonuses should motivate employees to refer because they

serve as a desired reward in exchange for a desired behavior. We first

expand the approach to referral bonus conceptualization and

measurement—one that commonly examines referral bonus presence

(does offering a referral bonus matter?)—to also include the referral

bonus amount (do larger referral bonus amounts increase behavior?).

Next, we empirically examine the extent to which the referral bonus

affects two factors we propose as relevant to motivatingemployees to

refer: (a) the influence of perceived risk in referring on the likelihood of

referring and whether the referral bonus offsets the proposed negative

effect of risk; and (b) therole of affective commitment in influencing the

likelihood of referring and whether the referral bonus reduces the pro-

posed positive effects of affective commitment on likelihood of refer-

ring. Figure1 presents the relationshipstested here.

We seek to address two critiques of the employee referral litera-

ture: (a) it has primarily concentrated on outcomes of referring for

referred hires and organizations, but “has left organizations with few

clues about how to achieve [employee referrals]”(Van Hoye, 2013,

p. 452); and (b) it has given little attention to the referrers (Pieper,

2015; Pieper, Trevor, Weller, & Duchon, in press). Our expanded

focus on the characteristics of the referral bonus and how it interacts

with two internal motives for referring (perceived risk in referring and

affective commitment) integrates and extends existing theories on

1160 PIEPER ET AL.