If you’ve never encountered a situation where a job offer has been turned down, consider yourself lucky. Most organizations face this as a possibility when recruiting new candidates, especially when looking for top talent who may have multiple concurrent offers to consider.
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A sign-on bonus just might tip the scales. Let’s take a look at the benefits—as well as some potential pitfalls—of using sign-on bonuses to secure new talent.
Benefits to Offering Sign-On Bonuses
Here are some of the reasons employers use sign-on bonuses as an incentive for potential new hires. A sign-on bonus can:
- Mean the difference between hiring and losing a top-talent candidate, especially if the competing offers are for more money and your organization cannot match the desired salary level. In other words, it can be a way to match a starting offer, without having to match that same salary level every year. This is especially beneficial when the salary budget is tight.
- Be combined with a caveat that the employee must stay with the organization for X months—otherwise the bonus is negated and must be returned. This helps to ensure the money isn’t wasted. (Be sure to check with legal counsel to see if this option is available and legal where you operate.)
- Be offered in place of some other requested benefit that the company is unable to provide. For example, if a potential new employee is asking for a specific benefit such as life insurance or disability insurance and the organization does not offer that benefit, a sign-on bonus can be a way for the organization to assist the employee in getting that item individually. Or it can be presented as a way to compensate for the missing benefit the employee has requested.
- Be a great way to make up for a perceived loss on behalf of the job candidate. For example, if that person is leaving a position in which he or she would be eligible for a bonus later in the year, that job candidate may be reluctant to walk away from his or her current position before that bonus is paid. Offering a sign-on bonus could make up for that. This could also apply for multiple other scenarios in which the candidate is giving up some benefit or program that your organization does not match.
- Signal to a candidate that he or she is part of an elite class of employees. This can act as a form of recognition of achieving a certain level within the organization. It can have an outsized impact if presented well.
- Signal how serious the organization is about this individual.
- Be a way to fill a job faster, simply by making the offer better overall thus reducing the likelihood of the job offer being turned down. This can be important if the job needs to be filled immediately or if there are not enough qualified candidates and you don’t want to risk losing a qualified candidate to another employer.
Potential Pitfalls of Sign-On Bonuses
As you can see, sign-on bonuses can be a great negotiation tool. But they can also be harmful if not handled carefully. There are several potential pitfalls to avoid if you’re considering using sign-on bonuses to attract candidates to your organization.
The first concern is: who should a sign-on bonus be offered to? It can be difficult to answer this question. If it’s offered to everyone, it may be money spent unnecessarily. If the sign-on bonus isn’t truly necessary to secure the new hires—they would have joined the organization either way— the money may be able to serve a better purpose if used elsewhere.
To avoid this problem, most organizations try to only offer sign-on bonuses in scenarios where the candidate may not join the organization without it. But sometimes that determination is difficult to make, and it may be too late once it’s offered.
Not knowing when to offer the bonus is just one problem.
Tomorrow we’ll look into even more potential pitfalls of offering sign-on bonuses.