Signing bonus: The pros and cons, and how you can negotiate

Signing bonus: The pros and cons, and how you can negotiate



Companies use various strategies and incentives to attract and retain top talent, especially for roles with talent scarcity. One such incentive companies use is a signing bonus. This financial reward is offered in addition to the salary and other benefits discussed in the employment contract to get candidates to join for certain roles.

While such a bonus might appear enticing, individuals need to understand various factors before accepting such an offer. Experts suggest that candidates should try and understand why a company is determined to hire them, assess the pros and cons of the contract, negotiate if necessary and understand the nuances of the contract and the incentive before signing on the dotted line.

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Why companies offer a signing bonus

Ruchi Ahluwalia, Group Chief People Officer, Quess Corp, a business services provider, says a signing bonus serves as a powerful tool for companies to not only attract but also swiftly onboard top talent without compromising on the internal compensation ratio. These are often offered to candidates with specialised skills or in high-demand roles.

Elaborating further, she says that the bonus is typically a one-time, lump-sum payment provided on the candidate’s acceptance of the job offer. It serves as an immediate financial incentive to join the organisation. Hence, it can be a win-win for employers and employees.

Signing bonuses are more prevalent in critical roles across various sectors where talent competition is intense, says Ahluwalia. Quess particularly emphasises their use in technology and leadership positions. The bonus is paid at the C-suite leadership level and to the executive leadership levels to attract highly talented leaders. By leveraging signing bonuses strategically, the organisation aims to stand out in competitive markets and attract the best-fit talent for these roles.

Pros and cons of a signing bonus

Ahluwalia advises individuals to weigh the pros and cons associated with this incentive before accepting it.Advantages

  • Immediate financial boost: Signing bonuses provide candidates with upfront financial support, helping with relocation or any immediate expenses
  • Competitive edge: It positions the employer as competitive in attracting top talent, especially in markets where such bonuses are customary
  • Retention tool: When structured properly, signing bonuses can be tied to tenure, encouraging candidates to stay with the organisation for a specified period
  • Adjusting comp ratio: These bonuses help to bridge the pay gap without adjusting the base salary of the employee

Cons

  • Tax implications: Individuals getting the bonus may end up paying higher tax rates
  • Potential for misalignment: In some cases, candidates may prioritise the bonus over the long-term fit with the organisation, potentially leading to a misalignment of values and goals
  • Clawback provisions: Organisations may require repayment of the bonus if the individual leaves the company within a certain timeframe
  • Compensation: Signing bonuses do not impact the individual’s base salary but can inflate the cost to the company

How you can negotiate a signing bonus

Though a signing bonus is a benefit in itself, negotiating certain aspects about it may not only lead to a favourable outcome but will also help employees showcase their ability to smartly convey the true worth of their skills and abilities. The group chief people officer of Quess says an employee can influence the final number of the bonus in their favour by researching about the industry and the company; talk about long-term views and tell the employer how the money will be used for learning, which will benefit the company.

Ahluwalia says candidates should always have done their research on the industry’s standards for signing bonuses. This will help them establish a reasonable negotiation range and keep the expectations realistic. She points out that this in itself will display a skill candidates bring; if individuals can articulate their unique value, it will go a long way.

She says candidates who explore the possibility of structuring part of the bonus as a performance-based or tenure-linked incentive showcase commitment. Companies tend to favour such people. Discussing these issues with the HR department before the offer is released will help the company word it suitably.

Companies also find it difficult to ignore candidates who present a plan to invest their signing bonus on professional development that can contribute to the company’s growth. While signing bonuses play a pivotal role in talent acquisition, both employers and candidates must approach negotiations with utmost transparency and a long-term perspective, adds Ahluwalia.



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Author: Shirley