Why Offer a Hiring Bonus Instead of a Higher Salary?
It may seem counter-intuitive to offer an employee a signing bonus. Paying a new employee a large sum of money up front before he completes any work for you seems a poor way to run a business. A higher salary, on the other hand, allows an employer to spread out payments over a longer period of time in exchange for receiving a work product. But signing bonuses decreases a business's salary expenses in the long run, encourages quality employees to join a business and incentivizes future performance.
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Decrease Long-Term Wage Expense
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A signing bonus is a one-time benefit and not part of an ordinary salary. Raises and cost-of-living adjustments are made in the context of base pay. By providing a signing bonus as an enticement for a new employee, you decrease the long-term expenses from salaries instead of inflating the base salary because future raises will be smaller than they would have been with a higher salary base.
Encourage an Employee to Join Company
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A signing bonus can provide significant incentive that a higher salary cannot. When a company is competing with several other firms for the same employee, an upfront payment may be just the benefit that pushes your firm over the top. This is especially important in areas where there are few qualified workers to fill necessary positions. A signing bonus may also be necessary to compensate the employee for any benefits he may be giving up by leaving his old place of employment for the new opportunity. Although a new company may be able to offer a higher salary, the current employer may have upcoming bonuses that the employee qualifies for and that would provide a more immediate payout. Or the current employer may have superior benefits, such as a better health care plan, that might make the employee hesitant to leave. A signing bonus is one way to mitigate the difference between the benefits offered by the current and potential employers, making a new employer more attractive.
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Incentivizing Future Performance
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Individuals who receive a signing bonus have been shown to work harder once they start their employment. Some evidence demonstrates that individuals who receive signing bonuses are more likely to achieve future performance-based bonuses in the future. Presumably, achieving more merit-based bonuses suggests that these employees who receive signing bonuses work harder and better than those who don't receive any such compensation. Suggested reasons for this include that employees are more loyal to firms providing bonuses and people who receive these bonuses believe they are a better "fit" with their firm and feel more comfortable working in that environment.
Tips and Disclaimer
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When drafting or entering into any legal work contract, consult with an attorney to ensure that all parties' rights and responsibilities are understood prior to formalizing the agreement. Although there are benefits to using signing bonuses, there can be negative repercussions, such as decreased office morale. Consult with human resources, consider the risks and plan on how to respond to any significant issues to minimize problems. Every effort has been made to ensure this article's accuracy, but it is not intended to be a substitute for legal advice.
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