What Is a Sign-on Bonus?

A sign-on bonus is a one-time lump-sum payment offered to a prospective employee as an incentive to accept the job. A sign-on bonus may consist of a one-time payment or company stock options. In g꧟eneral, businesses ♏offer sign-on bonuses to highly qualified candidates who may be considering job offers from other companies.

How Sign-on Bonuses Work

Companies often use incentives to hire and retain the best talent. One of these incentives is called the sign-on bonus. It’s offered to prospective new hires in addition to any other compensation the🧸y may receive.

Once offered mostly to star athletes and software wizards, the sign-on bonus was adopted by many businesses, including fast-food outlets and warehouses, at the end of the COVID-1♒9 pandemic when they found themselves short-staffed and competing for employees.

So, in exchange for signing an employment contract with the company, a new employee may receive a lump-sum cash payment or stock options on top of their regular salary, bonus, vacation, and any other benefits noted in their agreement. A sign-on bonus may be as much as 10% or more of the potential hire’s first-year base pay.

Employees are often encouraged not to disclose details of their compensation to their co-workers—some even come with a 澳洲幸运5官方开奖结果体彩网:confidentiality agreement. That’s becau✨se employees who are promoted from within may not have the same benefits offered to them𒁏 even though they would be doing the same job as the new, external hire.

There is also some debate on the effectiveness of sign-on bonuses, especially in instances wherein the new hire applied for the job out of their existing desire and should not need mo🌠re coaxing to accept the position. If the recipient of a sign-on bonus quits within a short time after accepting the position, there may be a good chance they will have to return all or a prorated portion of the bonus.

Reasons Companies Offer Sign-on Bonuses

Employers may offer a sign-on to a new hire as a way to make up for any benefits they may lose when they leave their old job. Sign-on bonuses may also be a means for the c𓂃ompany to make up for shortcomings in the overall salary they can offer under their current pay structure.

For instance, if a potential hire’s expectations for the role are above what the comp🌜any pays to other workers in that same position, a sign-on bonus can be used as a short-term way of granting them the type of salary they ♊desire.

By offering a sign-on bonus, c🉐ompanies may also encourage candidates to accept a job offer more quickly, thereby reducing the risk of losing them to compꦇetitors or having them withdraw from the hiring process. A generous sign-on bonus can make a job offer more appealing compared to offers from other companies.

Finally, starting a new job often incurs various costs for the employee, such as 澳洲幸运5官方开奖结果体彩网:relocation expenses. A sign-on bonus can help offset some of these ဣcosts and make the transition smo🐼other for the new hire. Though the bonus isn’t specifically for these costs, it could be presented to a candidate who the company wants to offer the upfront lump sum to help with these costs.

Negotiating a Sign-on Bonus

You can negotiate your sign-on bonus. First, it’s essential to understand the market value of your skills, experience, and the industry standard for sign-on bonuses. Unfortunately, your skill set or experien💙ce may not warrant this type of benefit. However, better understanding what other people usually get may help you negotiate even a small sign-on bonus, regardless of what your position is.

Be prepared to compromise and prio♒ritize essential aspects of the offer beyond just the sign-on bonus. For example, in lieu of a♉ sign-on bonus, you might able to get more leverage for a higher salary or higher performance bonus.

Sign-on bonuses, like other types of bonuses, often appear to be a major windfall, but because the money is taxed at the recipient’s marginal tax rate, much of the bonus will end up going to the employee’s federal and state government. An individual who receives a $10,000 sign-on bonus and is in the 22% federal 澳洲幸运5官方开奖结果体彩网:tax bracket will pay $2,200 of the b🌺onus in taxes, leaving only $7,800. In most states, state income tax would further lower the value of the $10,000 bonus. Because of this, keep in mind how other elements of your negotiation may maximize your tax benefits.

Sign-on Bonus vs. Retention Bonus

A sign-on bonus is typically offered to a new employee upon accepting a job offer or starting a new position within the company. On the other hand, a 澳洲幸运5官方开奖结果体彩网:retention bonus is designed to incentivize curren🔯t employees to stay with the company for a specified period.

Unlike a sign-on bonus, which is typically offered upfront, a retention bonus is 🤪contingent upon the employee remaining with the company for a predetermined duration, usually one or more years. Retention bonuses are commonly ෴used to retain key talent, mitigate the risk of turnover, and encourage loyalty and long-term commitment among employees.

An example of a retention bonus can be seen in vesting schedul🐻es. For example, an employee may receive a 10% retention bo🐻nus equal to their initial salary. However, 20% of this bonus may pay out equally over the next five years. Therefore, if an employee leaves after the second year, they may have only received 4% instead of 10%.

Note that a sign-on bonus may or may not have a similar type of vesting agreement. For example, an employee may be requiꦡred to remain with the company for at least six months; otherwise, the sign-on bonus may be prorated back to the company.

Downsides of Sign-on Bonuses

It may not always be inꦉ your best interest to accept a sign-on bonus. Some downsid𝓡es or reasons to reconsider negotiating for a sign-on bonus include:

• Tax Implications: Sign-on bonuses are typically subject to income tax, which means you may receive less than the advertised amount after taxes are deducted. Depending on the size of the bonus, this can significantly impact your take-home pay. You may be better off getting the same amount of compensation but spread out over a period of years for maximum tax benefit.
• Strings Attached: In some cases, sign-on bonuses may come with strings attached. For example, we talked about retention in the previous section. You may be forced to pay back the sign-on bonus (or at least part of it); in some cases, you may want greater flexibility without the risk of having to repay a bonus.
• Impact on Other Negotiations: Accepting a sign-on bonus may limit your ability to negotiate other aspects of your compensation package. In addition, it may limit non-compensation elements. For example, you may want to angle for your job to be 澳洲幸运5官方开奖结果体彩网:100% remote. You will only have so much ammunition to negotiate before the company will start to decline certain aspects of your counteroffer.

The Bottom Line

Sign-on bonusꦐes are financial incentives offered by companies to new employees upon accepting a job offer or starting a new position. These bonuses serve to attract top talent, offset relocation costs, and signal appreciation for the candidate’s skills and experience.