Sign on Bonus

What Is A Sign-On Bonus?

A sign-on bonus is an introductory payment you could get upon beginning a new job. A single payment, several payments made over time, or stock options are all possible payment methods.

The bonus won't have an impact on your overall compensation because it is a one-time payment. During the interview process, it's crucial to determine whether receiving a sign-on bonus will benefit you financially in the long run or if it would be preferable for you to receive a modest sign-on bonus before requesting a raise in pay. Lowering your initial bonus and raising your salary makes far more sense if you want to work for the company for a considerable amount of time.

Why Businesses Give Sign-On Bonuses

Employers may give you a starting bonus for one of three reasons.

• Skill: If you possess in-demand skills, you are more likely to receive a starting bonus. Employers gain an edge over rivals when they offer bonuses. It's a tactic to persuade you to think about the job they're offering. You are more likely to receive a sign-on bonus if there is a high demand for your services across numerous businesses.
• Reimbursement for the wage: Employers occasionally provide this incentive as compensation. They might not be able to pay you what you want, for example. Employers could be forced to pay less than you requested in order to maintain compensation equity within the organization.
• Equalize advantages: If you are a specialist in your profession, leaving one employer for another could cost you a bonus or other rewards. In this situation, your potential employer might give you a sign-on bonus to make up for the benefits you would be giving up.

Advantages And Disadvantages Of A Sign-On Bonus

Advantages

A sign-on bonus is a one-time payment.

Let's imagine your candidate requests $12,000, but you can only afford to pay $9,500 for the position. In a situation like this, you can think about providing a sign-on incentive to entice the candidate with the whole pay package.

In the first year, your employer's compensation expense consists of the 12K sign-on fee plus the prorated total salary; however, in the following years, you just pay the base salary.

In the long term, this will cost your business less money.

A sign-on incentive can aid in luring candidates away from other offers.

You might wish to include an additional incentive to show your interest in the candidate if you are aware that she is in high demand or might be evaluating alternative offers. Consider the scenario where you wish to hire a highly qualified engineer, but she has also received offers from other prestigious companies in the city.

The sign-on incentive may be your chance to convince her to work for your business. It also demonstrates that you value her and want to be seen seriously as an alternative.

Disadvantages

When the candidate returns to a base wage in year two without the sign-on incentive, they might feel underpaid or underappreciated.

Your candidate might feel underpaid or underappreciated in year two when they realize that the base salary makes up the entirety of her overall cash remuneration and there is no sign-on incentive. She might even believe that she just got a pay cut. Even if she was aware of the terms of the agreement when she signed it, it might be frustrating for the employee when the sign-on incentive is lost, and her pay is lower than it was in the first year.

You must confirm that your business can provide it right away.

Finding the money to provide a sign-on bonus could be challenging. In addition, the candidate's first or second paychecks should include the entire payment of any sign-on bonuses. Therefore, even though it might seem obvious, it's important to remember that after your candidate accepts your offer, you'll need to make sure you have the money on hand and are ready to deliver it to her right away.

Conclusion

When a possible candidate is asking for pay that is significantly higher than the established salary range for the position, it might be difficult to negotiate salary with her. This is especially true if you are really excited about her.

When this is the case, a candidate may place a high value on a variety of non-salary aspects of an offer, which may influence their decision to join your team. Consider increasing the amount of vacation time, the bonus possibilities, or the amount of commuter reimbursement.

As an alternative, you may think about providing a sign-on bonus, which is a one-time higher payment that can help you come up with a competitive overall compensation package that provides an (often sizeable) short-term financial incentive.