4 tips for how to structure sign-on bonuses
Although sign-on bonuses often differ 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 not be so difficult to hire for 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 make use of them as needed. A signing bonus is just one of many tools in your recruiting toolkit, so use it when it suits the situation at hand.
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.
