Pros and Cons of Offering a Sign-on Bonus 

When it comes down to the negotiation stage of bringing in a new employee, the hiring manager and/or team needs to be prepared to play the game tactfully. Of course, that’s true for both sides. Because if either party comes off too strong, uncooperative, or resorts to ultimatums, the offer can fall apart.
When internal equity and a set salary range is involved it can leave a treacherous situation where the hiring manager does not have enough “wiggle room” to reach what the candidate is asking for. There are multiple incentives that can be added or increased to assist with satisfying a salary gap — increased vacation, flexible schedules, higher bonus potential, company cars, etc. But the incentive I want to focus on here is offering a sign-on bonus to counteract any pay discrepancies.
Let’s break down the pros and cons.

Sign-On Bonus Pros

1) A Sign-On Bonus is a One-Time Payment
The ability to offer a sign-on bonus is phenomenal for a company because it ultimately comes down to a one-time payment. This has somewhat of a ripple effect in that it ultimately keeps more money in the company’s pocket and department budgets. If the company were to provide an increase to the candidate’s base salary, that raises the bar across the board, from yearly bonuses to an increased principle for when the candidate is ultimately promoted. This is more true at larger companies that are confined to strict structures and tight budget allocations, but it is also pivotal within smaller companies operating with less capital.
If a candidate were to request a $2,000/year increase to their salary and the hiring manager is not able to increase the salary, they could instead counter with a $3,000 sign-on bonus. This would result in the company technically coming in on the unfavorable side for year 1, but each year after that the company is subsequently benefiting from not having to pay that increase year over year. Therefore, year 1 does not ultimately result in a “loss” for the company.
The majority of sign-on bonuses also come with fine print that ensures that the employee will establish a certain tenure with the company — typically six months to a year. The company enters a contractual agreement for the employee to stay for that set amount of time, which can result legal ramifications if not adhered to. If the employee leaves before that obligation is fulfilled, then that employee would be responsible for repaying the sign-on bonus in its entirety.
2) Sign-On Bonuses Can Help Cover Differences in Salary and Perks
Ultimately, the goal is to close the pay/benefit discrepancy as much as possible while staying aligned to the budget. A sign-on bonus can be a great counter for employees faced with a lower bonus structure, less vacation, longer commute, etc. It also highlights that the company is willing to negotiate with the candidate in order to meet the candidate’s needs.
3) A Sign-On Bonus Can Separate You from Competing Offers
One of the greatest perks of offering a sign-on bonus is that it can set you apart from your competitors. If a rock star candidate is interviewing with two companies for a similar role, obviously he/she will want to leverage those offers against each other to obtain the best package possible. If one of the companies is able to sweeten the pot with a $5,000 sign-on bonus, it could be just enough to help sway the candidate’s decision and get them in the door.

Sign-On Bonus Cons

1) Sign-on Bonuses Require an Immediate Investment
Offering a sign-on bonus can have a few drawbacks as well. For one, it is an immediate investment that the company puts into the employee. While the bonus is not a gift and ultimately comes packaged with stipulations, it still needs to be paid out in full in the candidate’s first paycheck or two. As a hiring manger, you will have to ensure that the funds are available, and that paying the sign-on bonus doesn’t leave other areas in jeopardy.
2) Offering Sign-On Bonuses Can Set a Precedent
Some companies may also be concerned with establishing a precedent for giving sign-on bonuses. Ultimately, this will drive top talent to your company with the added incentive, but it will also take away a bargaining chip during the negotiation stage. With limited pieces, it is important to keep them lined up to be beneficial for the company.
3) It’s Not Guaranteed to Work
The final downside is that offering a sign-on bonus won’t always be enough to bridge the gap between where the candidate wants to land and what the company can offer. Sometimes in the end, it doesn’t work out, but I recommend trying to get creative before accepting defeat at the negotiation stage. Just remember everything that was done and invested to find the candidate and get to this stage!

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Image by Frederic BISSON