Should You Offer Sign-On Bonuses? Consider These Pros & Cons First

As of February 2023, workers have leverage in the labor market. Despite seemingly pervasive employment anxiety and layoffs at large tech companies, job seekers still have plenty of negotiating power—and they’re not afraid to wield it.

But compensation negotiation can already be tricky. How do you negotiate with candidates that have salary expectations above what your organization can offer, while still having an edge over the competition?

Sign-on bonuses might be the way to match competitions’ compensation, but there are a few things you should consider first. This article covers the pros and cons of sign-on bonuses so you can approach hiring in a way that’s suited to your company’s unique needs, capabilities, and constraints.

The Pros of Sign-On Bonuses

Sign-on bonuses can be a highly effective recruiting tool for several reasons. Let’s review the pros of signing bonuses:

Attract Top Talent

In a tight labor market, attracting top talent can be difficult. What makes your role more attractive than the other open positions out there? Beyond company culture, work-life balance, flexible work environments, or other factors, you might consider offering your potential hires a sign-on bonus. A one-time cash payment for accepting a job offer is a great way to let candidates know you’re willing to invest in their future with the company and value their presence.

Beat Competing Offers

The best and brightest in your industry are probably going to have at least one competing offer. Again, what makes your role better than all the rest? Maybe there are plenty of reasons outside of compensation, but pay is usually the first thing candidates consider. Therefore, offering a sign-on bonus could give your organization an edge over the competition and attract indecisive candidates your way.

Meet Compensation Expectations

Have you ever had a great candidate ready to accept your job offer, but their salary exceptions exceed what your company is willing to provide them? It’s happened to every hiring manager, especially when budgets are tight.

Sometimes there’s nothing you can do, and your perfect candidate goes in another direction. Those things happen. But other times, you can offer a signing bonus to bridge the gap between a candidate’s desired compensation and what you’re willing to offer across the year. Supplementing an employee’s salary with additional compensation like bonuses is a great way to show you value their contribution and want to keep them around for the long haul.

Widen Your Candidate Pool

A potential pro of signing bonuses is their ability to widen a hiring manager’s candidate pool. Because moving is expensive, most job seekers go after local positions that allow them to stay at their current residence. But offering your potential new hire extra compensation in the form of a sign-on bonus might alleviate the financial burden of moving or traveling to a new location. You’re opening yourself up to thousands of more candidates just by removing relocation as an obstacle.

The Cons of Sign-On Bonuses

Despite the many benefits of sign-on bonuses, there are still some drawbacks. Here are the cons of sign-on bonuses:

They Can Be Risky

Sign-on bonuses can incentivize your hires to stay with the company long-term. Still, there’s always risk associated with hiring. For example, say your new hire quits only a few months after their start date, but you’ve already paid their signing bonus. Depending on the state they work in, there’s a chance you won’t get that money back.

Unequal Pay

There’s a chance that offering new hires a signing bonus may cause disgruntlement from tenured employees who did not receive one. Those tenured employees may request higher salaries or additional compensation to level the playing field. If you’re unable to accommodate those demands, you risk fostering a sense of inequity amongst your employees, potentially leading to low morale and increased turnover.

Higher Salary Expectations in Year Two

With a signing bonus, employees are likely to feel satisfied with their compensation package in the first year. But offering sign-on bonuses may create unrealistic expectations for future years. They might feel underpaid in year two, for example, and request additional pay in the form of another bonus or a higher salary. Is your company prepared to appease such requests to keep your high-performing employee satisfied? Hirings managers might benefit from making these considerations before offering a signing bonus.

Consider Both the Pros and Cons of Sign-On Bonuses

In conclusion, sign-on bonuses can be a valuable tool for companies looking to attract and retain employees in an already tight labor market, but it’s important to consider both the potential pros and cons before offering them.

More importantly, hiring managers should always consult with both legal and tax advisors before implementing any type of bonus structure, signing bonuses included.

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