A sign-on bonus is a plus for any potential employee, but what are the pros and cons for the company doing the hiring? Should you offer one? Here is some insight on the benefits and disadvantages.
A sign-on bonus is often used to encourage a candidate to apply for a position needing filled. And while it looks encouraging to the potential new hire, how important is it for the company? Let’s look at some benefits.
Creates Engagement
Often, a job seeker is more apt to want to learn more when they see a sign-on bonus offered. This gives them an incentive to investigate further.
Matches Salary Requirements
You can’t always match what the new employee made at their old job. But sometimes a sign-on bonus does exactly that, without being a continuous drain on your budget.
Sweetens the Deal
If an excellent job seeker is on the fence, a sign-on bonus may be just the thing that entices them to take the plunge, or at the very least, inquire about the position.
Ideal for Relocation Scenarios
A sign-on bonus works well for those needing to relocate. It doesn’t obligate you to pay for moving expenses, but allows them to use it as such. Plus, it looks engaging and kills two birds with one stone.
These are all excellent benefits for both the company and the potential employee. But what about the drawbacks?
Added Costs
If you have a strict recruitment budget, this added cost may put a strain on your finances.
Bonus Shopping
Many employers only offer a sign-on bonus after a certain period of time worked. This is because some employees with do what is known as bonus shopping. They’ll work the minimum to receive the bonus, then move on to someone else. While this isn’t the norm, it does happen.
Inflated Short-term Retention Rates
Depending on how soon you offer the bonus, this may inflate your retention rates incorrectly. If an employee is only staying long enough to get the bonus, all you had was a short-term employee you invest in.
Unfair Practices
If current employees find out about a sign-on bonus, they may feel it’s unfair that they did not receive the same treatment. Many will feel that while they were loyal and gave the company their best, the new recruit gets paid just for getting hired. And this can cause you to lose a good employee vs one you just hired.
Prospective Employee Distrust
Job seekers may be distrustful of specific terms that come with a hiring bonus. The bonus may seem attractive, but the terms can lead them to believe it’s a bait and switch. For example, if they must remain a year before they see the bonus, some can feel that they’ll never see it at all.
Should You Offer One?
Only you can make the decision that is right for your company. Sign-on bonuses can be an excellent recruitment tool. But make sure you weigh the pros and cons first.
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Synergy Solutions is an executive and contract search firm focused on roles within the technology sector. If you have questions regarding this article or would like to discuss strategy on open roles at your company, please contact us and someone will get back to you with the next 24 hours.
Good information. But article falls short of explaining how these bonuses affect IRS W2 income reporting, specifically if an employee is required to return bonus money received due to job loss. To job seekers, beware of sign-on bonuses! My experience is that they’re offered as bait because job position(s) can’t be filled for reason(s) that employer/recruiter do not discuss during recruitment.