Whether you call it a hiring bonus, a signing bonus, or a sign-on bonus, the idea is the same: It’s a bonus offered to a job applicant to entice him or her to accept the position. It could be a flat dollar amount, or it may be a percent of the new salary, typically anywhere from 5%–25%.
This type of bonus can be paid upon hiring (as the name implies) or in installments, or it could, instead, be paid upon completion of x months or years—which acts as an incentive to stay on the job. When paid at hiring, a signing bonus may come with terms that require payback if the new employee leaves before a specified amount of time has passed.
Should You Offer a Signing Bonus? Here are the Benefits
Here are some of the benefits to offering a signing bonus:
- It may be a way to match a candidate’s initial salary requirement while not keeping the full amount in the annual budget. This allows the organization to keep its salary budgets intact while still offering an enticement for a candidate who may be just out of reach otherwise.
- It can be used to “sweeten the pot” for a candidate who is not yet convinced. This is often used for top talent who may need that extra incentive to leave their current role. This type of bonus is not used regularly but may be used for roles that are especially tough to fill.
- A hiring bonus can be used if the organization does not offer formal relocation assistance. This can help a new employee offset some of the expenses that may come with a new job and new move. In effect, it compensates for other missing benefits.
- It may create a competitive advantage when the candidate has other offers under consideration.
Should You Offer a Signing Bonus? Here are the Drawbacks
There are also plenty of downsides to signing bonuses. Here are a few to consider:
- Prospective employees may be wary of the terms that come with a signing bonus. They may not be willing to commit to x months or years up front before having experience with the organization—yet may not want to part with that portion of the offer.
- A signing bonus can incorrectly inflate short-term retention figures. For example, if a new hire must stay a full year in order not to be obligated to return the bonus, he or she may wait to leave until that time is up. This simply means you’ll have an unhappy employee around a bit longer when the time could have been spent finding a replacement.
- Employees who were hired with a signing bonus may be keen on trying to find another bonus at another organization. Offering a signing bonus may inadvertently set up a situation where the new employee has an incentive to leave (to get more money) rather than stay after the initial period ends.
- An upfront bonus obviously adds to recruitment costs. If it is offered and the employee would have accepted the job anyway, that extra expense may not have been necessary.
- If these become public knowledge, employees who were not offered signing bonuses may feel it is unfair, which could impact employee morale. This is especially relevant for employees in the same or substantially similar roles.
What has your experience been with offering signing bonuses? Did it enable you to fill a tough position? Or did you fear it was offered unnecessarily?