Tuesday, September 27, 2011

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.

1 comment:

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