Question:
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 our offices.
We made her an offer and were surprised 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 such a high signing bonus. Here’s our question—Do these bonuses work for employers, or just for employees?
Answer:
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 (https://www.chicagotribune.com/business/ct-biz-united-10k-bonus-airline-hiring-shortage-20220228-lxjvmyjxmrfzzcbfkk7vmhgfoy-story.html).
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.
Making signing bonuses effect
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 ahead prior to a specified time or fail 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 that 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 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 soon than agreed.
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, PhD, SPHR, SHRM-SCP and author of “Navigating Conflict” (Business Experts Press, 2022); “Managing for Accountability (BEP, 2021); “Beating the Workplace Bully,” AMACOM 2016, and “Solutions” is President of Communication Works, Inc. and founder of www.workplacecoachblog.com, which offers more than 400 articles on topics such as leadership, COVID, management, HR, and personal and professional development. Curry has qualified in Court as an expert witness in Management Best Practices, HR and Workplace issues. You can reach her at https://workplacecoachblog.com/ask-a-coach/ or follow her @lynnecurry10 on twitter. Watch for details on a January webinar on Navigating Conflict by Lynne Curry, free to members of Law Office Manager.