In the battle for talent in the U.S. labor market, employers have several arrows in their quivers: salary, annual bonuses, benefits like health and dental insurance, vacation time, flexible scheduling, company culture, etc. All of these can be used to entice candidates to apply to work for a given employer, and these various arrows can be mixed and matched to find the right combination of incentives to deliver a compelling job offer to the desired candidate.
But there’s also another incentive that is often overlooked and rarely used by many organizations: signing bonuses. These one-time payments are meant to sweeten the deal for applicants on the fence about whether or not to join an organization.
In this feature, we look at the pros and cons of signing bonuses and what factors contribute to decisions over whether or not to offer them.
Pros of Signing Bonuses
Perhaps the biggest benefit of signing bonuses is the ability to provide a strong incentive for a chosen job applicant to accept a job offer without having to significantly increase long-term financial commitments through offering a higher salary or higher annual bonus.
“Signing bonuses are widespread, especially in the current slower job market,” says Sarah Doughty, Vice President of Talent Operations at TalentLab. “Many employers are attempting to lower trailing payrolling costs after years of high-volume hiring. Investors want frugal leaders who can build high-performing teams with a value-oriented approach to recruitment,” she says. “Signing bonuses serve as a way to keep offers competitive with a one-time payment that does not impact long-term payrolling budgets.”
Cons of Signing Bonuses
The most obvious drawback of signing bonuses for employers is the cost. Signing bonuses can vary widely in their size, from a few hundred dollars to tens or hundreds of thousands of dollars for top executives. That’s money that a hiring manager might not have in their budget, especially if that budget is based on an expectation that compensation is paid out steadily over time as in traditional salary arrangements. Even companies with deep pockets may have individual teams whose budgets just don’t have room for big, up-front payments to new hires. But that upfront cost isn’t the only potential downside of signing bonuses.
“They may also create expectations for future bonuses among new hires or existing employees, which could lead to short-term employment if the bonus is the primary motivation for the candidate,” says Thad Price, CEO of Austin-based marketing firm Talroo. “However, it’s essential to consider the potential impact on company culture. If not managed effectively, signing bonuses could create a culture of entitlement or short-term thinking.”
In What Situations Do Companies Tend to Offer Signing Bonuses?
There are a handful of common situations in which signing bonuses tend to make sense for employers. The first is when a candidate is on the fence about a job and the employer wants to give that extra incentive without significantly surpassing the intended long-term budget for a role. For example, an employee wants a little bit more money to accept an offer, but the company can’t or doesn’t want to offer a higher salary year-to-year, so they offer a one-time signing bonus.
Another common reason for offering signing bonuses is when a candidate stands to lose out on bonuses or other long-term incentives by leaving their current employer. This is particularly common in certain industries like tech.
“In the high-tech sector, signing bonuses are increasingly being used instead of higher base salaries seen pre-pandemic. These bonuses help attract candidates with significant equity or RSU [restricted stock unit] packages from their current employers,” explains Doughty of TalentLab. “Over the past decade, many tech start-ups have used ‘golden handcuffs,’ offering large equity packages with long-term vesting schedules, making the equity valuable only at maturity. As a result, candidates often stay with their current employers until they can sell their equity, prompting other employers to offer signing bonuses to compensate for the potential future equity loss.”
As the above examples illustrate, signing bonuses can be useful tactical tools in certain situations to help employers and applicants get over the final hurdles of an employment negotiation. But experts caution that it’s not necessarily a great idea to advertise such bonuses up-front.
“The signing bonus is another tool in the employer’s negotiation toolkit. And like any other tool, it should be used only when appropriate and with proper care,” says Richard Birke at JAMS Pathways. “About 5% of jobs are currently advertised with signing bonuses, according to Indeed Hiring Lab. That’s not a huge percentage, but certainly a much larger percentage than in years past. More employers are likely using signing bonuses as an incentive but are not posting the bonus as a guarantee.”
What if a Candidate Requests a Signing Bonus and the Employer Doesn’t Typically Offer One?
Finally, a note on the importance of flexibility in considering compensation packages. Not all employers traditionally offer signing bonuses, and there’s an understandable temptation to stick with what an organization has always done before instead of taking a new approach. But in a tight labor market, the war for talent is real, and companies shouldn’t fall into the trap of being so rigid they forego bringing on great candidates.
“You should always consider what a candidate is asking for, even and especially if it helps you become a more competitive employer,” advises Albert Kim, the VP of Talent at Checkr. “If we didn’t try things because we’ve never done them before, all businesses would fail to thrive, and no one would start a new one. Whether you decide to implement them or not, exploring bonuses fully helps you better understand the hiring climate.”
While signing bonuses are not a universal solution to landing that perfect candidate, they represent a valuable tool for employers striving to enhance their appeal in a competitive job market. By carefully balancing the benefits and drawbacks, and using signing bonuses strategically, organizations can attract and retain top talent, ultimately fostering a more dynamic and high-performing workforce.
Lin Grensing-Pophal is a Contributing Editor at HR Daily Advisor.