Latest / Hiring & Firing with Fexingo: Recruitment, Performance, and Workforce Decisions / How a Simple Paycheck Changed Hiring Forever
Transcript
- Lucas: So there's a mid-sized tech company in Austin — about 300 employees, mostly B2B SaaS — that ran an experiment last year that I think is genuinely one of the most interesting hiring moves I've seen in a while. Luna: I'm intrigued. What did they try? Lucas: They started paying every job applicant who completed their two-hour skills assessment. Not interns, not final-round candidates — everyone who made it past the initial resume screen. One hundred dollars, paid within a week of the assessment, no strings attached. Luna: Wait — they paid candidates just to take a test? That's a fascinating bet. What was the rationale? Lucas: The VP of People told me the idea came from a frustration with no-shows. They were running about a 22 percent no-show rate for those assessments, and they suspected a lot of qualified candidates were self-selecting out because the ask felt one-sided. You're asking someone to give up two hours of their day, often during work hours, for a chance that might not go anywhere. So they flipped it — made it a transaction where both sides invest. Luna: That's a big shift in framing. Instead of 'prove yourself to us,' it becomes 'let's explore each other.' Did the numbers change? Lucas: Dramatically. Over a six-month period, their no-show rate dropped from 22 percent to about 6 percent. But the more interesting stat is that the quality of candidates who completed the assessment actually improved. They measured this by looking at the assessment scores themselves — the average score went up by 12 percent compared to the prior six months. And the offer acceptance rate for candidates who went through the paid process was 17 percentage points higher than before. Luna: So paying them didn't just get more people in the door — it got better people, and they were more likely to say yes. That's a triple win. But I imagine the first question any CFO asks is: what did this cost? Lucas: About twelve thousand dollars over six months. That's roughly two hundred dollars per hire, if you spread it across the sixty people they ended up hiring from that pipeline. Compare that to the cost of a bad hire — which industry estimates put somewhere between thirty and fifty percent of first-year salary for a role like a software engineer — and it's almost trivial. One bad hire at a hundred-and-twenty-thousand-dollar salary could cost the company forty to sixty grand. So even if this program prevented just one bad hire, it paid for itself several times over. Luna: Right, and that's just the direct financials. There's also the signal it sends to the market. If I'm a candidate and I hear a company pays people to do their assessment, I'm going to think they value people's time. That's a powerful employer brand move. Lucas: Exactly. And the VP I spoke with said they actually got unsolicited Glassdoor reviews mentioning the payment. Candidates wrote things like 'they actually respect your time' and 'it felt like a partnership from day one.' That kind of organic word of mouth is hard to buy with traditional recruiting ads. Luna: I wonder if there's a psychological mechanism at play too. Reciprocity — when someone does something for you, you feel inclined to give back. By paying them upfront, the company is essentially saying 'we trust you, we value you.' Candidates might then engage more deeply with the assessment, which could explain the higher scores. Lucas: That's exactly what the VP thinks. She described it as 'buying in' — not buying the candidate's compliance, but buying into a mutual relationship. And here's the thing: they didn't make the payment conditional on completing the assessment. If someone started and had to stop halfway for an emergency, they still got paid. That level of trust is rare. Luna: That's a bold policy. How many people actually took advantage of that? Lucas: Very few — less than two percent of candidates started and didn't finish. But the existence of the policy matters. It's a signal that the company isn't trying to trap you or create barriers. And that signals a healthy culture before you ever step foot in an office. Luna: This reminds me of something I've been thinking about a lot lately. You know, a couple of dollars a month is genuinely what keeps these shows going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Absolutely. It's listener support that keeps us ad-free and lets us dig into experiments like this one. And it's a small amount that adds up to a real difference for the network. Luna: So back to the Austin company — did they see any pushback from existing employees? I could imagine someone thinking, 'Wait, you're paying strangers to apply, but I don't get anything extra for my overtime.' Lucas: That's a fair concern, and the VP said they addressed it head-on by being transparent about the rationale and the budget. They framed it as a recruiting expense, not a compensation line item. More importantly, they also introduced a small referral bonus increase around the same time, so employees felt they were included in the investment. Luna: Strategic. And did the program scale? Are they still doing it? Lucas: As of this spring, yes. They've expanded it to include phone screens — if you pass the initial chat, you get a twenty-five-dollar gift card just for scheduling the assessment. They've brought the no-show rate down even further, to about four percent. And they're now tracking a longer-term metric: retention of hires who came through the paid assessment. Early data suggests those hires are staying about 20 percent longer than the previous cohort, though it's only been about a year. Luna: Twenty percent longer retention would be huge. If that holds, the program isn't just a recruiting win — it's a retention win too. What's the catch? There has to be a downside. Lucas: The biggest downside is that it attracts some people who are primarily motivated by the one hundred dollars, not the job. The VP estimated about five to eight percent of applicants were 'incentive seekers' — they'd take the assessment, collect the money, and then either decline to proceed or be clearly unqualified. But that's a manageable friction. The company's view is that filtering those people out is worth the cost of the hundred dollars, because you'd waste more time screening them otherwise. Luna: So it's a cost of doing business, but a small one. I'm also curious about the legal side. Paying candidates — does that create any classification issues? Could someone argue they're an employee for that two hours? Lucas: That's a real consideration, and the company's lawyers were involved from day one. They structured it as a 'research participation stipend' — not wages, not subject to payroll taxes, paid via a third-party gift card platform. As long as there's no control over how the candidate performs the assessment — they can take it whenever, wherever — it's not an employment relationship. Several other companies are now looking at similar models, so we might see clearer regulatory guidance soon. Luna: Are any big-name companies doing this? Lucas: Not yet. The closest I've seen is some consulting firms that pay for travel and lodging for final-round interviews, but that's different. This is about paying for the early-stage screen, which is where most candidates drop off. The Austin company is a bit of a pioneer, but I've heard of at least three other mid-market tech firms experimenting with variations — one is paying fifty dollars for a thirty-minute coding challenge, another is offering a donation to a charity of the candidate's choice. Luna: The donation angle is interesting — it might appeal to candidates who feel awkward about taking money. But it might also dilute the reciprocity effect. If you're not getting something personally, do you still feel that obligation to engage deeply? Lucas: That's the open question. The psychology of reciprocity is strongest when the gift is personal and unexpected. A donation to a cause might feel less like a gift and more like a corporate PR move. I think the direct payment is cleaner, but I'd love to see a controlled experiment comparing the two. Luna: Speaking of experiments, what about cost for smaller companies? A hundred dollars per candidate might be fine for a 300-person firm hiring sixty people a year, but for a startup with five employees, that could be a meaningful line item. Lucas: True, but the principle scales down. A startup could offer a twenty-five-dollar gift card for a thirty-minute screen. The key is the gesture — any amount that feels respectful of the candidate's time. There's research showing that even a five-dollar coffee card reduces no-shows by a significant margin. The amount isn't as important as the fact that there is an amount. Luna: So the lesson here seems to be: stop asking candidates to give you time for free. If you want them to invest in you, invest in them first. It's almost obvious, but most companies don't do it. Lucas: Exactly. And I think the reason most companies don't do it is that they see recruiting as a buyer's market — they assume candidates should be grateful for the opportunity. But the best candidates have options. They're interviewing at multiple places. If you want them to choose you, you need to differentiate. And paying for their time is a very tangible way to say 'we see you as a peer, not a supplicant.' Luna: It's also a test of your own values. If you claim to value people, but you're unwilling to put a small amount of money behind that claim during the hiring process, candidates will notice. The Austin company's experiment shows that when you walk the walk, you attract people who appreciate that integrity. Lucas: And those are exactly the people you want on your team. So the question I'd leave listeners with is: what would it take for your company to try something like this? Even a pilot program with one role, for one month, could give you the data to make a case. Luna: And if you do try it, let us know. We'd love to share the results — whether they work or not. Lucas: Absolutely. That's it for this episode of Hiring & Firing. We'll be back next week with another experiment you can steal.