When you’re struggling to lure in talented candidates who will bring your business into the future, a signing bonus can be an effective way of getting their attention. Now, some might say that’s overkill. But a sign-on bonus isn’t just for executives — it can come into play during any level of talent acquisition. Here’s what you need to know before you put your next offer on the table.
How Does a Signing Bonus Work?
The majority of companies — 74 percent, to be exact — give bonuses to at least some of their new hires, but amounts vary widely depending on the field. For an executive in the finance industry, you can expect six-figure signing bonuses, while for registered nurses, most bonuses will stay under $10,000. Some companies also give out smaller bonuses. Even a $500 check can make a difference.
Signing bonuses usually come in the form of a lump sum given at the start of a new job. Unlike a relocation payment, there are no strings attached to how the employee may use the money. They can pay off debt, move or pad their savings. Usually, the bonus comes with a requirement that the employee work for the company for a certain amount of time or else repay the money. Most companies will say that if an employee quits or is fired for cause less than two years into their time working, they have to return the bonus (but it’s theirs to keep if they’re laid off).
When to Give a Signing Bonus
A bonus isn’t a magic recruitment wand, and it’s not meant for every circumstance. Here are three situations, however, where a well-placed bonus can help bring in a new hire.
- Making up for a lost bonus. If you’re chasing a candidate who’s set to receive a performance or profit-sharing bonus at their current job, offering them a bonus might make it financially feasible for them to leave their present company behind and come to yours.
- Sweetening the pot in a tight market. When there’s stiff competition for talent, you need to stand out. A bonus can make your company more attractive to potential employees, while a retention clause ensures the new hire will stay to grow with the company for at least a couple of years.
- Offering flexibility for new hires. For lower-level jobs, and especially when hiring new grads who need to move, a signing bonus can act as a more realistic alternative to the traditional relocation bonus. People rarely need a full-service moving company to move their half-broken flat-pack furniture from their college apartments, but they might love $2,000 to help with a deposit or to make a big student loan payment.
All that said, while most companies give bonuses to at least some employees, most people change jobs without one. Don’t make a policy of offering extra bonuses just for its own sake.
It goes without saying that hiring employees costs money. A signing bonus, even if it’s pretty hefty, comes with one major advantage: It’s a one-time payment. If you offer a candidate $50,000 and a $10,000 new-hire bonus, over two years the employee will receive $110,000. If you offer the candidate $55,000, their two-year payout is the same — but after that, the employee starts to gain much more than what the company would have paid had it originally offered a bonus instead. As future raises and bonuses are based on that base salary, the employee comes out ahead in the long run with a higher salary and no sign-on payment.
A lump sum payment can be a boon for the employee, too. Even though the IRS will take a hefty chunk of their sign-on bonus, an infusion of cash can give a struggling bank account a healthy boost, instantly granting new employees the kind of financial security that would normally take months to build.
A bonus also creates a contract between the employee and the employer. While this gives the company a bit of security, it doesn’t destroy the at-will relationship between the two. The company can still fire the employee and the employee can still quit, but there are financial consequences if they do. An employee should never agree to a bonus that requires repayment in the case of a layoff or non-cause termination, so you shouldn’t ask them to.
Talent acquisition can be a challenge for any company. While signing bonuses shouldn’t be the norm, they’re a powerful tool that can smooth out difficulties in the hiring process. Your business relies on the best talent to be successful, so having a secret weapon may be just what you need.
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