Refer-a-friend to a job.... Round Two....
Jason Davis at Recruiting.com has it right on referral systems.
When I was heading up corporate development at HotJobs, I loved the possibilities presented by the business model -- wouldn't it be great to let people -- "super-connectors": people like Lois Weisberg -- connect their friends to jobs and earn money at the same time? Wouldn't this be a lot more effective than the hunt-and-seek world of executive search?
Alas, it wasn't to be.
While it turns out that there is a market for the payment to strangers for connecting your company with strangers that you hire, that market is called “the executive search industry”.
Let’s assume people want to get paid a reasonable amount for the time and effort they put in to helping their friends get their next job. If the price is set too low, they’ll really rather not bother (if you don’t buy this premise, then just set your company’s employee referral program payment to $0 and watch it wilt under the soft haze of indifference).
Well, if you believe that markets are efficient, the right amount to pay folks used to be about 33% of first-year salary, (it’s now as low as 20% in some cases – that’s the double-edged sword of productivity gains in action there) for working full-time to place people.
In effect, what the referral systems are saying is, “can we pay somebody less than market for ‘hiring’ them part-time to recruit for us?”
And the answer came back heavily no.
Because the exceedingly minor productivity advantage that a referrer has (she happens to know the ‘perfect’ person for the job) is dramatically overshadowed by the productivity advantages that a recruiter has: multiple candidates to show the hiring manager, domain expertise in understanding the manager’s hiring needs, scale of operation, and salesmanship.
So it seems that “Round Two” of Refer-a-Friend will be a tough business in which to thrive unless the productivity gains of the new systems are dramastically better than before.
