Sign-on bonuses have become increasingly common in recent years. The tighter job market likely plays a role in their newfound popularity. These bonuses sometimes occur more often in some fields than others. But job market demand often fuels them. Here’s what a sign on bonus is and who gets one.
Why a Sign On Bonus?
A 2016 survey by World at Work found 65% of companies polled offered sign on bonuses. That continues an upward trend from a low of 54% in 2010 as the economy was recovering from recession.
Sign-on bonuses are most likely to go to top executives and to workers with particularly in-demand skills. A specifically recruited candidate is more likely to get a bonus than one who applied for an opening. For example, nurses, accountants and engineers are more likely to get sign-on bonuses than other employees.
Candidates who are entertaining offers from multiple employers are more likely to get sign-on bonus offers. And large companies are more likely to offer bonuses than smaller employees.
Purpose of a Sign On Bonus
The purpose of a sign on bonus is to attract an employee who might go elsewhere without the added inducement. A bonus can also help retention, at least in the short term.
A one-time sign-on bonus may let an employer avoid a preset salary level for a particular position. Say the top salary for a software engineer is $100,000. A desirable candidate has a $105,000 offer from a competing firm. A $10,000 sign-on bonus could let a prospective employer beat the competition without breaking salary restrictions.
Sign-on bonuses can also help employers make up for benefits the employee may be losing by taking the job. For instance, the employee in question may be about to get a promotion or sales commission at his or her current position. The prospective employer may compensate the employee to make up for the foregone benefit.
Size of a Sign On Bonus
A sign on bonus can be any size the employer deems necessary and has the funds to budget for. Another World at Work survey found senior executives got the most. Forty-one percent of those receiving sign-on bonuses got $50,000 or more. Bonuses for middle managers and professionals are likely to be between 5% and 10% of starting base salary.
Sometimes employers will offer other benefits in lieu of or in combination with cash sign-on bonuses to help lure attractive employees. Alternatives may include increased vacation time, tuition reimbursement or payments to cover commuting costs. Over time, alternatives may be worth more financially than the bonus.
Sign On Bonus Terms
It is typical for sign-on bonuses to require some time commitment from the employee in return for the cash. One year is the usual term an employee has to agree to work before receiving a sign-on bonus.