Why Might an Employer Pay a Signing Bonus?
Use a Signing Bonus for Hard to Find Employees Such As Senior Managers
A signing bonus is a lump sum of money that an employer provides to a prospective employee. The purpose of the signing bonus is to entice the applicant to sign-on with the employer’s organization in the posted position. The employer hopes that the offer of the bonus will provide extra incentive for the prospect to accept a job offer.
When Do Employers Use a Signing Bonus?
The signing bonus is most often used for senior-level positions or to recruit employees with special, hard-to-find skills and experience. Examples of such prospective employees include software development experts who work effectively in teams and are effective communicators, market research savvy employees, experienced senior managers with keenly honed soft skills and prior departmental management-level responsibilities, and employees who specialize in data collection and analysis.
Family practice physicians and internal medicine doctors are several more examples as fewer doctors choose to enter into these specialty areas preferring instead to enter more lucrative specialties such as surgery. The value of these physicians is expected to escalate in the years ahead so a signing bonus will see more use.
The signing bonus is also used, on occasion, to recruit high potential students out of college. The best and brightest students will have multiple job offers from desirable employers. You can set your job offer apart from the others by offering to pay a signing bonus as well as your base salary, competitive benefits, and bonus opportunities.
This is an essential tool as the war for specialized talent continues to escalate. Employers may need to offer a signing bonus to attract the talent they need.
The signing bonus is also useful when an employer wants to recruit a candidate when other employers may be competing for the same potential employee. Most candidates are quite open about the fact that they have multiple offers.
You need to determine how badly you want the job candidate, or how difficult it will be to recruit another qualified candidate, and then, determine if a signing bonus is your best bet.
Sample Situations in Which to Use a Signing Bonus
One example might be a female program developer who is heavily recruited by the west coast big corporations such as Google and Microsoft who face criticism for their lack of diversity. To engage her services, over the attraction of the giant corporations, a midwest employer might offer a signing bonus.
A second example is a senior-level chief technology officer (CTO). Good ones are in demand and heavily recruited. To compete for the most talented candidate, an employer might need to offer a signing bonus.
A third example is a sales manager with a proven track record of sales success. You know that he has received another job offer and you think that he is a perfect fit for your open job. Rather than lose a great candidate, you offer him a signing bonus hoping to seal the deal.
Use the Signing Bonus to Make a Candidate Affordable
A signing bonus is also useful to help a candidate bridge the gap between the salary that he or she wants and the offer that is on the table. This saves the employer from incurring the annual costs of a higher salary than they had decided to pay for the position.
The advantage of a signing bonus for the employer is that it is a one-time payment. The employer has not added that extra compensation to the company’s bottom line as a recurring annual expense.
Employers need to take care when using this approach, though. When the next year's salary negotiations begin, the employee who received the signing bonus will expect an increase that bridges the difference between his salary and the salary plus bonus he received on hire. You can bank on this.
Even if you told them it was a one time deal, you raised their expectations. And, essentially, the employer has just postponed the affordability problem until the next annual raise cycle.
You do not want an employee who feels underpaid and unappreciated working in any job for your organization. The employee potentially has a negative impact on other employees and customers in your workplace.
If your salary ranges are fair and you are not discriminating against any protected class of employees, you don't want to pay an employee way out of your range. Employees do talk about money and the employee will know.
The Bottom Line
A signing bonus is a useful tool for specific employment situations. You should use them judiciously to recruit superior employees in hard-to-fill positions. The average applicant for the normal position will not seek or expect a signing bonus. They provide employers with just one more tool for recruiting and hiring the most talented employees.