As the job market changes for many industries and highly desirable skills shift, you might find yourself asking, “What is a signing bonus?” And how do signing bonuses work as part of modern job offers?
A signing bonus is a sum of money offered to a potential employee by a prospective employer. This sum is a way to entice the individual into taking the position. This type of incentive isn’t uncommon, but it often accompanies jobs that prove difficult to fill.
A signing bonus also is offered to people with special skills or talents that prove challenging to acquire in an otherwise ideal candidate. Employers also offer signing bonuses to help offset relocation costs or beat their competition and acquire superior talent for their organization when there’s high demand for specific skills.
Signing bonuses also help make up for benefits the employer doesn’t offer but candidates expect as part of their employment package. If you’re a savvy individual, you can also request a signing bonus to help get more money than you would with a set salary.
How Does a Signing Bonus Benefit the Employer?
There are several reasons an employer would offer a signing bonus to potential job candidates, including:
- Fill positions more quickly
- Gain the better talent
- Ensure individuals stay at the company for a set period
- Fill positions that prove difficult to fill otherwise
- Gain the attention of a greater number of potential candidates
- Make job offers more enticing even if other compensation is low
- Maintain salary equity
Employers offering a signing bonus might include that as part of a job offer to a prospective employee as a way to offset the fact that their benefits package, salary, or other types of compensation might be on the low side.
This additional compensation usually comes with a contractual obligation for the employee to stay at the company for a given amount of time, giving the employer plenty of time to strategize and make the most of the talent they acquired. Employees generally don’t pay back their signing bonus unless discussing special terms during the hiring process.
Employers also benefit by bringing on better talent, as a signing bonus can sweeten any deal for a potential employee. Many employers also find that when they have a position that is hard to fill, a signing bonus can speed up the hiring process, saving time and money overall.
Advertising that employees get signing bonuses tends to attract more candidates to the application process, which is good when you’re looking to fill a particular niche in your workforce or encourage greater diversity.
How Are Signing Bonuses Typically Paid?
Signing bonuses most often are a single payment, but it's not unheard of for a signing bonus to consist of multiple payments spaced out throughout a set period. These staggered payments allow the employer to spread out the cost of the new employee, enjoy the perks of using a signing bonus during the hiring process, and make the employee feel appreciated.
A signing bonus typically ranges from $1,000-$50,000 or more in unique circumstances, but there is no set amount. The amount differs based on the type and seniority of the position, the difficulty of finding the right candidate, and other relevant factors.
You can also expect signing bonuses in the form of stock options, which is more common with startups. In this instance, employees acquire stock at a specific price as part of their compensation package. The employer will have a vesting schedule established to limit the number of shares an employee can accumulate each year.
Stock options aren’t a great form of compensation, but they are a nice perk if you have a decent salary in place. The uncertainty surrounding the stocks employees hold and their changing value make them a less desirable form of compensation.
What Are the Drawbacks of a Signing Bonus?
When an employer offers a signing bonus to avoid paying a higher salary, they might have only postponed paying the employee more money for one year or until the next annual raise cycle. Employees must also follow careful terms to keep their signing bonus, such as working for the company for a specific amount of time or achieving certain milestones.
Sports contracts are a great highly publicized example of how an employee (the athlete) needs to work for a specific amount of time before their signing bonus is theirs. In this instance, the athlete might have to wait for their signing bonus until they fulfill the time frame specified, and those who have larger signing bonuses might get incremental payments throughout several years.
These specialized terms are unusual, and they do restrict what an employee can do without incurring penalties. Employers must also count on the employee wanting a pay increase equal to their previous salary plus the signing bonus amount at the next raise cycle, which is an added expense.
Accepting a job offer with a signing bonus might also mean you earn a lower salary for a period until you become eligible for a raise. Employees should read the terms of the signing bonus carefully as it's rarely free money with no strings attached.
Tips For Negotiate a Signing Bonus
So, do you know how to ask for a signing bonus as you consider different offers? Here are some tips to help you navigate the process.
When you get to the part of the hiring process where your potential employer makes a job offer, you can begin to negotiate a signing bonus. Some individuals are in a position to negotiate early on during the hiring process. Still, in either case, you need to read over the terms of the signing bonus carefully and ask questions.
First, how do signing bonuses work for this company? Since there is no set standard, each company has different policies. Some of these bonuses get paid out in one lump sum, while others adhere to a payment schedule that can last years.
Remember to ask if the signing bonus will replace any year-end bonuses you would otherwise receive and how long you’re required to stay with that company to receive your signing bonus in full.