I would agree with him but this only applies to the 1% of companies that are "awesome" and only hire "awesome" employees (and where the existing employees think like founders and only have the good of the company in mind). Most companies aren't like that, and also most employees are not awesome, they're average.
Referral bonuses are a great way to save money on recruiters while at the same time getting better employees.
This type of post is really easy to say if you have some sort of personal equity in the business. The larger the business, the more that equity gets diluted.
I work in a MegaCo, which has these sorts of referral bonuses. In addition, teams in the company are spread out over individual clients. If I refer someone, it is more likely than not that I won't ever work with this individual. I'm paid by salary (not profit-sharing) so I don't have a financial stake in the efforts of the firm. I'm not management, so many decisions about what this new employee would be doing are removed from me.
If I don't get to work with my referral and I don't stand to gain equity from their work, a referral bonus makes the economic seesaw balance. Saying it's "pants on head stupid" is short-sighted and only applicable to extremely small companies.
One good reason to have this kind of bonus: you're more likely to end up hiring people who existing employees have already worked with. Having a common culture is hugely valuable, and outside recruiters/random applicants don't have this quite as often.
I haven't heard of situations where someone refers a bunch of garbage applicants for the referral bonus--and I'm sure the usual referral agreement has some legal caveats that allow the company to cut off particular referrers if they're abusive.
It's not necessary for every company, but it's not as toxic as it sounds. From working as an actual recruiter: recruiting is really hard. Doing part-time recruiting for a fee well below the industry standard is a waste of effort; if you can make good money doing that, quit your dev job and start recruiting full-time.
Um, most of us already have a job. We don't think about doing HR's job most of the time, we're busy. And there's an emotional hump to get over, to beg a friend to consider moving jobs to work at your place.
$10,000 does a lot to realign folks' attitude. I'll go to my old colleague John McGinty (actually he referred me :) and say "Sococo is a great place to work, we're ramping up and getting new customers daily, the work is exciting and we need you!"
Maybe I'd go to somebody less able too. But we're looking to grow lots, folks don't all have to be architects. Its not black and white who is a fit and who isn't and its essentially not my call anyway - its the hiring managers'.