Hiring Bonus: What’s Good for the Employee Should Also Be Good for the Company

To offer a hiring bonus, or not to offer a hiring bonus: this is the question.

For some industries, hiring or sign-on bonuses are common; for others, they are less so. And in some cases, it depends entirely on the position.

If you do choose to offer a bonus for your open position, it’s important to make sure it’s both enticing to the prospective employee and beneficial for your company. Let’s look at some cases where a sign-on bonus makes sense, as well as some tips for creating bonuses that are mutually beneficial.

Why Offer a Hiring Bonus?

A sign-on bonus can be a valuable addition to a compensation package in many instances. For example:

To attract candidates to an open position 

If you’re struggling to find candidates for your position, offering a bonus can make it more attractive. This is particularly effective if the candidate pool is small or if a bonus is not typically offered in your industry.  

To bridge the gap between expected base pay, earned commission, or anticipated bonuses

For example, say you have a candidate seeking total compensation of $150k, and your position is structured for a $100k base salary plus $50k in bonuses. However, because of your ramp-up time, the employee won't hit that amount until 6-12 months after they start. A sign-on bonus can help bridge that gap.

When you’re competing with another offer

If your ideal candidate is considering multiple job offers, a sign-on bonus can help entice them to take your position.

To compensate for something you don't offer

For example, if you don’t offer as much vacation time or other benefits as the competition, an up-front bonus can help make up the difference.

When you don't want to add to your ongoing salary expense 

A sign-on bonus is a good way to offer the compensation a prospective employee seeks without adding to the employee’s salary on an ongoing basis. 

To cover a waiting period

If the potential new employee will have to wait for benefits to kick in (like health insurance, for example), a sign-on bonus can make up the difference during that waiting period. 

To make up for something the candidate is giving up by coming to your company 

If the candidate will miss collecting on a bonus at their current job or take a cut in pay or benefits if they choose to take your open position, a bonus up front can help compensate for that loss.

Best Practices for Creating a Hiring Bonus 

Here are a few suggestions to help you create an effective sign-on bonus offering and avoid some common mistakes.

Prepare in advance

Determine specific terms for your bonus program, and stick to them. For example: decide if you’ll require a minimum time commitment within which the employee will have to pay back the bonus if they leave. Also determine when and how you’ll pay the bonus: in one large lump sum, or in smaller payments spread out over the first year, for instance.

Stay on budget

Calculate how much you can afford to offer within your hiring budget. While your bonus should be competitive, it also needs to be affordable.

Spread out the bonus over time

Pay the bonus in smaller installments over time. Spreading out the bonus helps limit your risk. For example, paying a $10k bonus up front can backfire if the person leaves two months into the job. By spreading the payments out over time, you’ll have less to lose if they decide to leave.

Keep installment payments to a reasonable timeframe

Carefully consider the time frame in which you’ll pay out the bonus. A year is a good benchmark. Much less than that, and you risk too much loss if the employee leaves; but if you spread it out longer than a year, the bonus loses its allure.

Offer a big enough bonus to make it attractive

There’s no set formula to determine the right amount for a bonus, but it should be commensurate with the position and large enough to draw candidates. For example, offering only $500 for a $100k position is far too little. The bonus offered should be dependent on the position, salary level, and how difficult it is to fill the particular job.

We hope these tips help you create a hiring bonus that attracts great candidates and suits your company’s needs and budget. 

Looking for more hiring tips? Follow Red Seat on LinkedIn.