Sign-On Bonuses: The Reality of When and How to Use Them

By Robert Half on November 8, 2022 at 2:25pm

In this competitive hiring market, top candidates often receive multiple job offers. And if that’s not enough of a headache for hiring managers, millions of workers are still resigning every month, increasing the pressure to get talent in the door to stay.

So, how can you make your offers stand out from those of your rivals to secure the professionals you need?

One way is by tempting candidates with sign-on bonuses. Over a third (34%) of employers surveyed for Robert Half’s 2023 Salary Guide said they offer these upfront payments to get people on board. If you’re looking for the lowdown on this effective recruiting strategy, plus best practices for incorporating sign-on bonuses into your job offers, we’ve got you covered.

What’s a sign-on bonus?

A sign-on bonus is a financial incentive offered to a potential new hire. The amount varies widely by industry and job level but generally lies between 5% and 20% of the base salary. Smaller bonuses are usually paid in full right away, while larger bonuses may be handed out over time or come with strings attached (more on that below).

Why should you offer a sign-on bonus?

These are the most common reasons employers offer sign-on bonuses:

To recruit for hard-to-staff positions

Research for the Salary Guide shows that employers in most sectors struggle to hire for open jobs — 88% of technology managers, for example, said it’s challenging to find skilled professionals. In such a competitive environment, a sign-on bonus could tip the scales in your favor.

To bridge the gap between your offer and candidate expectations

Perhaps during negotiations, a candidate asks for a higher salary than you can afford or mentions that the benefits at their current employer are better. Consider making up the difference with a sign-on bonus to make your overall offer more appealing. An added advantage? As this is a one-off payment, you won’t incur the annual expense of a higher salary.

To show a candidate you recognize their worth

Professionals want to be rewarded, but they also like to feel wanted. If you know that a candidate is in high demand and considering other offers, a sign-on bonus sends a powerful signal that you highly value them and are willing to go the extra mile to bring them on board.

4 tips for structuring sign-on bonuses

Although sign-on bonuses vary widely in range and conditions, several general principles apply. Consider these options and best practices:

1. Build in contract terms

If a sign-on bonus is substantial, you may want to include conditions such as:

  • Paying a portion upfront and the rest after a probationary period
  • Paying in installments, with later payments due only if the employee remains for a set period, such as six months or a year
  • Stipulating that the employee must repay all or part of the bonus if they leave before completing a defined period of active employment, such as two years

Bonuses with strings attached act as loyalty incentives and give you time to confirm that the candidate is a good hire. The potential drawback? Too many clauses and caveats may offend candidates who feel they have nothing to prove. That’s why it makes sense to structure bonuses on a case-by-case basis, accounting for the candidate’s skill set, track record and experience.

2. Decide your upper limit — and stick to it

Confident, in-demand candidates will want to negotiate the terms and amount of the bonus, so you need to know your ceiling. If that number fails to meet the candidate’s expectations, emphasize other advantages of making the move, such as work-life balance, opportunities for advancement and additional perks.

3. Don’t get into bonus bidding wars

If your competitors are handing out generous sign-on bonuses, you might feel the need to match their offers or even increase the stakes. But this isn’t poker, where you can bluff your way to success. If the sign-on bonus becomes more than your company can afford, you may end up hurting your bottom line and hiring a worker whose value doesn’t justify the upfront cost.

4. Remember that sign-on bonuses are discretionary

Market conditions can change quickly, and positions that are hard to hire for now might get easier to fulfill in a few months — or vice versa. That’s why flexibility is essential. Rather than having a hard-and-fast corporate policy regarding sign-on bonuses, empower hiring managers to deploy them as needed.

Sign-on bonuses are becoming more common, particularly in industries with skilled labor shortages. By understanding how to structure and use them, you can make them an effective tool in your arsenal for attracting and retaining top talent.

More From the Blog...