Business/Economy

Sign-on bonuses for new employees can benefit employers if they are deployed carefully

Q: We went through a rigorous recruiting process and found the right new hire for our company. Our entire team loved her, from our managers to our employees, who met her when she did a walk through pf our offices.

We made her an offer and were surprised she asked for a day to consider it, as she’d been giving us consistent “you’re the company I want to work for” messages for weeks. The next day she called and said, “I’m very sorry. I liked everything I learned about all of you and your company, but another excellent employer offered me a $10K signing bonus. I’ve accepted their proposal. You’re a wonderful company and the person you hire will be lucky to work for you.”

She blindsided us — she never told us she was entertaining another offer. And while we’re paying competitive salaries, we can’t compete with that high a signing bonus. Here’s our question: Do these bonuses work for employers or just for employees?

A: A significant number of employers use signing bonuses, which have advantages and downsides.

Advantages

Employers use signing bonuses to gain a competitive edge when attracting top talent or when they’re desperate to fill positions. United Airlines offers a $10,000 signing bonus to new employees in positions ranging from part-time ramp agents to baggage handlers, paid in monthly installments to employees who remain with United for at least one year.

Besides using them to win top talent, employers also offer signing bonuses when unable to match a candidate’s salary expectations. By offering the bonus, they free themselves from the long-term burden of a higher salary and don’t throw their pay structure out of alignment. Employers also use signing bonuses to offset a candidate’s relocation expenses.

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Making signing bonuses effective

Employers generally give signing bonuses out in stages, often monthly, over one to two years, to incentivize their new employees to remain until they’ve received the full amount. Employers occasionally tie signing bonuses to an employee’s success in achieving specific goals.

Employers couple signing bonuses with written agreements so they’re able to claw back the money if the employee leaves the company prior to a specified time or fails to achieve agreed-to results.

Because few matters remain secret in a workplace, signing bonuses can create morale problems that result in current employees leaving for a new employer and their signing bonuses. To ease this problem, employers often provide longer-term employees with retention bonuses.

Disadvantages

Many employers shy away from sign-on bonuses, saying they don’t want to hire candidates who accept their jobs for the wrong reasons, but instead seek employees who want the opportunity the employer offers in terms of interesting, meaningful work and other benefits. These employers generally believe they attain better results from investing in overall compensation and benefit programs that keep morale high for all employees.

Some employers have discovered that signing bonuses attract short-term “cash and dash” employees who don’t remain long enough for the employer to recoup their investment.

Employers may also face morale issues when the employee’s bonus, delivered monthly over a year, ends, and the employee’s compensation reverts to a base salary. This can result in an employee paid less their second year than their first year and push the employer into raising the employee’s salary to keep them.

Employers also worry, with good reason, that they won’t be able to enforce the agreement to pay back all or prorated amounts of the bonus if the employee quits sooner than agreed to.

Although you didn’t ask, you can prevent yourself from being blindsided by a candidate entertaining competing offers. Assume they are. Also, when I interview applicants for clients, I always ask “Are there other prospective positions that intrigue you?” Then, during the vetting process, I stay in touch with the candidate to see what’s unfolding for them with other prospective employers. Finally, when an applicant that asks for “a day to consider” your offer, ask if they have concerns — because they’re likely balancing your offer against other those from other employers. If you were their favorite, they would normally ask, “When can I start?”

Lynne Curry | Alaska Workplace

Lynne Curry writes a weekly column on workplace issues. She is author of “Navigating Conflict,” “Managing for Accountability,” “Solutions” and “Beating the Workplace Bully,” and workplacecoachblog.com. Curry is president of Communication Works Inc. Send questions to her at workplacecoachblog.com/ask-a-coach or follow her on Twitter @lynnecurry10.

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