A signing bonus is when a company offers a sum of money to a potential employee to accept a job offer or relocate to a different area to be closer to the business. Generally, this bonus will include certain terms, such as:
1. Payment: The employer may choose to pay the bonus out in one lump sum, or in specified installment amounts on specific dates outlined in the contract.
2. Repayment: The employee is required to pay back all or a portion of the bonus if they quit or are fired before a specified anniversary (usually the one year anniversary).
3. One-time bonus: A signing bonus is a one-time bonus and does not constitute a guarantee of an increase in salary in the future if the employee does not meet the company’s expectations.
4. Taxes: all regular taxes are to be withheld from the bonus payments.
In a difficult economy, such as our current economic situation, most would think that offering a signing bonus to prospective employees would be pointless because there is a such a large surplus of labor and such a large deficit of jobs. However, research points to the contrary. Research shows that potential employees regard signing bonuses as a true reward and that there is meaning behind the offer, rather than the employer just throwing money at the employee to take the job. This could possibly be because when there is an excess of labor, rather than jobs, an employee feels privileged to receive a bonus offer when there are so many others out there the company could hire.
When a company offers a prospect a signing bonus a few things happen:
Company – the employer will have higher expectations that the employee will perform and produce at a higher level than someone without a signing bonus. After all, the employer needs to see the ROI from hiring the individual. If there is no potential for an ROI from the employee, then the employer won’t hire him.
Employee – the employee will expect higher earning ability from the company over time in the form of increases in salary, bonuses, or commissions.
Company – the employer will perceive the individual as someone worthy of the bonus offer because usually the individual has displayed her abilities as exceptional on a resume and during interviews sessions.
Employee – the employee will perceive the company as having a higher sense of trust in her, and as having a higher sense of worth to the company.
A signing bonus also works as a positive influence on the behavior of the employee. Those who receives this extra reward tend to work harder, at least initially. If a company wants to keep the employee motivated other incentives must be implemented in an ongoing effort to keep employee morale up and motivated to produce at the top of his abilities. It has not been proven that retention is affected by signing bonuses.
Then there are companies, such as Amazon and Zappos, who have implemented a pay-to-quit bonus. This is where a company offers to pay employees to quit. No, this isn’t something a company does to try to get rid of employees. Amazon, for example, believes that unhappy employees should feel free to leave the company. Zappos has a culture of energy and loyalty, and if an employee isn’t the right fit, they’d rather pay the employee to leave with a $1k pay-to-quit bonus rather than have someone who doesn’t fit into the culture of the business. But many people don’t leave jobs they aren’t happy at because they don’t have the income they’ll need when they’re between jobs.
The Way It Works
1. Specify Amount / Timeframe: The company offers a specific amount to employees to leave if they feel unhappy at the company. Amazon does this once a year. The bonus starts at $2k on the employees first anniversary and goes up $1k every year until it reaches the maximum of $5k.
2. Procedures: Specific request procedures are put into place to allow employees to request the pay-to-quit bonus. Proper procedures and paperwork must be put into place to track reasons the employees are unhappy and amounts that are paid out.
3. In Addition: The pay-to-quit bonus should be paid in addition to any other money due to the employee, but this will depend on the employee contract.
That’s it. That’s all there is to it. I think more employers should offer these types of bonuses. This helps weed out un- or under-productive employees, or those who just don’t fit into the culture, helping to build a solid team and company to serve customers the way they should be served.