Can I offer a bonus? Should I offer a bonus? How big should it be? Confusion often reigns, says Csizmar, who is founder and principal of CMC Compensation Group.
Sign-On Bonuses Are Like Wallpaper
Csizmar says the sign-on bonus is wallpaper used to cover cracks in the employment offer. It says, We know our offer is not everything you want to have, so how about this check to smooth things over.
However, Csizmar says, remember that next year, whatever the irritant was will still be there, but no second check will appear.
Sign-on bonuses are used to:
- Smooth over bumps in the road caused by candidate’s reaction to something in the offer that disappoints.
- Get the candidate thinking about what he or she could do with that bonus check.
- Make the candidate feel as though he or she were just elected into an elite group. This is especially true for lower level employees who have not experienced this before. The first time, you can’t help but feel that you have arrived, says Csizmar.
- Emphasizes candidate desirability. We all like to be pursued. The bonus makes a statement that the company really wants this person.
- Increase the acceptance rate.
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10 Times When Bonuses Are a Good Idea
Csizmar offers the following ten scenarios that should make you think about a sign-on bonus:
- When the offered salary is less than desired. When the company can’t offer more base, and candidate is still unhappy (meaning likely to refuse the offer), then a sign-on becomes an attractive option.
- When internal equity is a problem. When you can’t raise base because of internal equity issues, the sign-on can be a important tool for getting an acceptance.
- When candidate is not eligible for merit increase. For example, say new employees are not eligible for an increase until they have been on board for 6 months, and the company’s annual compensation changes are 5 months away—thus the candiate will have to wait 17 months for an increase.
- Similarly, when candidate is leaving the former employer just before former employer’s review cycle, the candidate may feel as though he or she will wait 2 years for a raise.
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- When there is some benefit or perk that your company does not offer. Often, certain things the previous employer provided, you can’t provide. For example, because of precedent, internal equity, tax implications, or other circumstances, you might not be able to offer certain insurance coverages, a car, pet insurance, airline club membership, first class travel, a phone, or whatever.
- Your company benefits are not as generous as the former employer’s (a lower 401(k) match, fewer vacation days, etc.).
- When program eligibility is lost. A reward from the former employer may be lost if the person quits to join you, for example, stock options vesting, or vacation pay. Of course one option is to delay employment for 2 or 3 months, but that’s often not a reasonable alternative.
- When candidate acceptance is critical. Sometimes a position is so critical and there are so few candidates, that you’re told to “do whatever it takes.”
- Similarly, you may face the “Supermodel syndrome,” says Csizmar. That’s when someone high up has fallen in love, and says, “Make it happen.” That person doesn’t care about internal equity, salary guidelines, or anything but get the person on board.
- When there is some other aspect that’s a negative, for example, your facility is in a remote location, or the position requires substantial travel.
In tomorrow’s Adviasor, the downside of sign-on bonuses, plus an introduction to BLR’s all-in-one website for comp and benefits information, Compensation.BLR.com.