Internal referrals are great. The problem is that, if you increase the fee too much, it's going to get harder and harder for employees to prioritize referring someone they know would be a great fit for a position (and get a nice spiff in the process) versus randomly referring people they vaguely know on the off-chance they'll get a multi-$K payout.
That very much depends on the company size too. If you're in a 100 person company you'd need a very high referral fee before you start pissing off your colleagues referring crap candidates. Whereas if you're in a megacorp you can pretty much do it with impunity.
One thing to keep in mind with the internal referrals is that people tend to recommend those who they like or with whom they had had a good "cultural fit" before. So if you only rely on internal referrals you might end up having a very homogenous workplace.
