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Monetary rewards in employee referral programs

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  • Emre Ekinci

Abstract

This paper examines the conditions under which employee referrals serve as a screening function when there is a conflict of interest between the firm and the current employees concerning referral recruitment. In particular, I consider two potential mechanisms that lead to a conflict of interest: the employee’s social connection with the applicant and her promotion prospects. Specifically, I posit that the employee will have an incentive to refer low‐ability applicants if she has a strong social connection with them or if she faces the possibility of competing against her own referral to earn a promotion at the firm. Taking these potential sources for conflicting interests, I investigate the extent to which the firm can make use of financial incentives (fixed fees and bonuses) to align incentives of the employee with those of the firm.

Suggested Citation

  • Emre Ekinci, 2022. "Monetary rewards in employee referral programs," Manchester School, University of Manchester, vol. 90(1), pages 35-58, January.
    • Handle: RePEc:bla:manchs:v:90:y:2022:i:1:p:35-58
    DOI: 10.1111/manc.12389
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