Why Might an Employer Pay a Signing Bonus?

A Signing Bonus Is Useful to Encourage a Job Offer Acceptance

New executive receives a signing bonus for accepting their job offer and signing a contract.
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A signing bonus is a lump sum of money that an employer provides to a prospective employee. The purpose of the signing bonus is to entice the applicant to sign-on with the employer’s organization. The employer hopes that the offer of the bonus will provide extra incentive for the prospect to accept a job offer.

The signing bonus is most often used with executive level positions or to recruit employees with special, hard-to-find skills and experience.

Examples of such prospects include software development experts who work effectively on teams, market research savvy employees, and employees who specialize in data collection and analysis. 

Family practice physicians and internalists are several more examples as fewer doctors choose to enter into these specialty areas. Their value is expected to escalate in the years ahead.

The signing bonus is also used, on occasion, to recruit high potential students out of college. The best and brightest students will have multiple job offers from desirable employers. You can set your job offer apart from the others by offering to pay a signing bonus.

The signing bonus is also useful when an employer wants to recruit a candidate when other employers may be competing for the same potential employee. Most candidates are quite open about the fact that they have multiple offers.

You need to determine how badly you want the job candidate, or how difficult it will be to recruit another qualified candidate, and then, determine if a signing bonus is your best bet.

Sample Situations in Which to Use a Signing Bonus

One example might be a female developer who is heavily recruited by the west coast big corporations such as Google and Microsoft who face criticism for their lack of diversity. To engage her services, a midwest employer might use a signing bonus.

A second example is a senior level chief technology officer (CTO).

Good ones are in demand and heavily recruited. To compete for the talent, an employer might need to offer a signing bonus.

A third example is a sales manager with a proven track record of sales success. You know that he has received another job offer and you think that he is a perfect fit for your open job. Rather than lose a great candidate, you offer him a signing bonus hoping to seal the deal.

Use the Signing Bonus to Make a Candidate Affordable

A signing bonus is also useful to help a candidate bridge the gap between the salary that he or she wants and the offer that is on the table. This saves the employer from incurring the annual costs of a higher salary than he had decided to pay for the position.

The advantage of a signing bonus for the employer is that it is a one-time payment. The employer has not added that extra compensation to the company’s bottom line as a recurring annual expense.

Employers need to take care with this approach, though. When the next year's salary negotiations begin, the employee who received the signing bonus will expect an increase that bridges the difference between his salary and the salary plus bonus he received on hire.

Even if you told him it was a one time deal, you raised his expectations.

And, essentially, the employer has postponed the affordability problem.

You do not want an employee who feels underpaid and unappreciated working in any job for your organization. The employee potentially has a negative impact on other employees and customers in your workplace.

If your salary ranges are fair and you are not discriminating against any protected class of employees, you don't want to pay an employee way out of your range. Employees do talk about money and the employee will know.

A signing bonus is a useful tool for specific employment situations. You should use them judiciously to recruit superior employees in hard-to-fill positions.

Also Known As sign-on bonus, recruiting bonus

Examples: Gerald decided to accept the job offer when the signing bonus raised the amount of salary in the offer to the compensation level he desired.