What is a Signing Bonus Really About?

Most people misunderstand signing bonuses – including the companies that offer them.

I am amused when a candidate gets high paying job offer and turns around and asks me to get them a signing bonus.  Many candidates mistakenly believe that a signing bonus exists merely for the pleasure of hiring them.  Not so.

I believe that companies initially offered a sign-on bonus, especially at this time of year, to lure senior executives away from their existing employer.   The money was given to compensate for things that would be lost if they joined a new company in the last quarter of the year or the first quarter of the next year when bonuses are awarded and other perks become vested.  That payment compensated for lost bonuses, stock options, profit sharing, other management incentives, etc.  If a company wants an executive badly enough and they want them to join now, signing bonuses are a very good incentive.  Otherwise they make no sense, really.

Some companies do use them instead of moving allowances and other relocation expenses.  This is especially true of smaller companies where there are no formal relocation policies in place.  Some companies use them as an incentive to keep an employee for a specified period of time – often a year; if the employee leaves before that time they are obligated to repay the bonus. 

Many companies use a signing bonus as a simple way of luring a new employee.  When used this way, it is a one time expense and does not show up as part of compensation.  For the employee, this means that unless a salary increase is given, there is actually a drop in compensation the following year.  A signing bonus used in this fashion doesn’t make a lot of sense to me, but it happens frequently.

If you are working at a company where a bonus is an integral part of your compensation or where a bonus is part of your employment agreement, than a one time signing bonus may make sense.  Otherwise, a signing bonus is probably not in the cards for you.

The Elusive Bonus

It is getting to be that time of year again.  You know, the time of year when employees start thinking about possible year end bonuses which may or may not come.

I love it when candidates tell me that their compensation is, say, $100k and then I find out that they are making $85k with a potential to make 20% more in bonus.  Truth is, they are not making $100 and probably won’t.  The operative word here is potential.  Many, many candidates, when I ask about compensation, include either real or imagined bonuses as part of their salary..  They are just wrong.  And it happens at every level, even people who are very, very senior.

I just got an email from a candidate. Here is his quote when I asked him if he had made his expected bonus:  “When they hired me last year (March 15^th) they projected sales of 16mm.  In June, they got a little full of themselves and upped the projections to 19mm.  We came in at 18mm and change. Had we stayed with the original numbers, I would have gotten about 22k [Instead, I got nothing.] “ I hear this story all the time.  It even happened to me once.

Years ago, I took a job at a small agency, starting in June.  I was promised a 20% bonus.  In December they gave me a stellar review and a check which represented about 4% - barely two weeks salary.  Their excuse: I only worked there half a year and so, they were giving me only half my pro rated bonus; when I challenged their math, the response was that I had not been there long enough to impact the organization, but I should wait until next year.  I didn’t wait.  I left.  I thought it was sleazy. 

The truth is, bonuses do not have to be given.  They are purely optional, although most people who accept jobs don’t hear the optional part when they take the offer.  You never know whether you will actually receive your bonus until you get it.  There are many companies where bonuses are part of the compensation – the old Messner, Vetere, Berger, McNamee and Schmetterer comes to mind.  MVBMS gave really nice bonuses to everyone for years.  But the they sold to EURO and, after a couple of years, the bonuses program changed.  EURO saved a lot of money.  I am not dissing EURO.  It is perfectly within the right of a company to change its bonus policies.

Most companies that I deal with are very careful about spelling out their bonus policy.  Few will commit to an amount or a percentage, even for senior candidates.  However, candidates tend to hear what they want to hear and often interpret even vague statements as absolute fact, which leads to disappointment.  

But unless you have a contract that specifically spells out the amount of your bonus, it is only a nice add-on, but it is not part of your compensation and should not be expected. Companies have a funny habit of having their bonus pool dry up.  I have heard all kinds of excuses:

-       The company did not have a good year

-       The holding company did not have a good year

-       The overall billings on your brand are down

-       The billings on your client company are down, despite the increases on your specific brand

-       We spent a lot of money chasing new business we did not get

-       You have to be here a full year to get your bonus and you were only here eleven months

-       There is a moratorium on raises and bonuses

-       No one is getting a bonus this year, including management

-       We are reevaluating our bonus plan

I have actually heard about candidates turning down jobs which offer a higher base salary, but they include their theoretical bonus in their current base and conclude that the new job is not paying enough, even though they have never received a bonus from their current company.  Pretty silly, if you ask me. 

You can’t live on a bonus.  It should be banked. And it should never be considered part of your compensation.

Unless a bonus is guaranteed by contract, don’t count on it.