What is a sign-on bonus?
A sign-on bonus, sometimes called a hiring bonus, starting bonus, or a signing bonus, is a financial award an organization offers to a prospective employee as an additional incentive to join their team. It can consist of a one-time lump sum payment, stock options, or both to create an enticing total compensation package for a candidate.
Some companies pay the bonus once the offer is accepted, while others may pay in increments throughout the first year of the employee’s time in their new role.
Businesses tend to offer a sign-on bonus to a highly sought-after or qualified candidate who may be considering multiple offers from other companies. For example, suppose an organization is looking to develop video content in the upcoming fiscal half. If a marketing candidate has experience in video editing, the organization may entice this individual to join their team with a sign-on bonus.
It’s common to use compensation management software to facilitate diverse bonus structures for potential and current employees, plan and administer employee compensation packages, and manage salaries.
Benefits of offering a sign-on bonus
Below are a few reasons an organization may offer a candidate a sign-on bonus.
- Hire someone with a high skill level: If a candidate has sought-after skills that are hard to find in other candidates, the HR department may offer a sign-on bonus to sweeten the deal to convince the individual to accept the offer letter.
- Beat the competition: If an employer believes the candidate has more than one job offer on the table, they may offer a sign-on bonus to out-bid the competition and get the candidate to choose their company over others.
- Salary workaround: If a hiring director believes a candidate is a right fit for the role, but the organization cannot offer the salary range the candidate is asking for, the hiring director may offer a sign-on bonus to make up for a lower salary structure.
- Make up for lack of other benefits: A sign-on bonus can make up for an organization’s lack of benefits. For instance, if a candidate leaves an organization that provides employees unlimited paid time off for a different company without this benefit, this bonus could persuade them to overlook it.
Potential challenges to offering a sign-on bonus
While there are many reasons why a company may decide to have a sign-on bonus policy within their hiring process, challenges may arise along the way.
- Employees may feel underpaid: While a sign-on bonus provides some instant gratification, come year two or three, employees may begin to feel their compensation is too low. It might seem like they’ve received a pay cut since the sign-on bonus is only a one-time sum, and they’re making less than they did in their first year in the role. If the organization cannot offer this employee an increase in compensation and benefits to match the bonus, this employee may start to look for other positions.
- Potential budget restrictions: Since new hires expect sign-on bonuses in their first or second paychecks, companies must make sure there are no budget restrictions that could stand in the way of offering this bonus.
Sign-on bonus vs. retention bonus vs. employee bonus
A sign-on bonus is given to a new employee as an additional incentive to accept their offer of employment. Employees who have been at their job for a predetermined length of time can receive a retention bonus.
An employee bonus shows appreciation for a job well done and rewards top performers for their hard work. Benefits administration software helps manage these types of bonuses.
For example, a company may offer a candidate a $2,000 sign-on bonus plus a retention bonus of $1,000 if they stay with the company for an entire year. Then, down the line, if this individual is excelling at their role, they could be offered a $1,500 employee bonus at the end of the year for a job well done.
