Finance Signing Bonuses
Signing bonuses are special monetary inducements for highly-valued recruits to join a firm. In addition to a lump sum payable upon the start of employment, they also may include additional payments after the new hire has met certain performance targets.
Signing bonuses are most frequently utilized by financial services firms to lure experienced producers from the competition. Signing bonuses are an especially common device used by brokerage firms to augment their ranks of financial advisors by signing experienced FAs who have built large, profitable books of business elsewhere (but subject to The Protocol for Broker Recruiting).
Signing bonuses also are often employed to recruit top investment bankers.
Signing Bonus Size
The size of a signing bonus, when offered, can vary greatly depending on the firm making the offer, the perceived value of the producer and book of business that it seeks to acquire, and the current competitive climate, especially what other firms are offering to lure similar talent. For seasoned financial advisors who are recruited via signing bonuses, it is not unusual for the amount to be around 100% of prior year's total compensation. In 2009, press reports indicated that some firms seeking to shore up the ranks of their financial advisors were offering over 300%, including incentives linked to performance over several years.
Signing Bonus Structure
A firm offering a signing bonus must guard itself against the possibility that the new employee soon will leave to accept another offer elsewhere, and/or that the employee will fail to perform up to expectations.
To protect against these risks, recipients of large signing bonuses often must sign legal documents acknowledging that the amount received represents a loan, and that the loan is repayable if certain conditions have not been met, such as remaining with the firm for a specified number of years and/or meeting certain performance goals over that time period.
As performance goals are met, or as years of employment pass, the terms of the agreement usually specify that the firm will forgive a portion of the loan, giving the employee the legal right to keep that sum, which then becomes taxable income to that person.
Signing Bonus Trends
The Institute of International Finance (IIF), a financial industry lobbying group, has tracked bonuses at leading financial institutions since 2007. The 2010 IIF survey of 37 firms ("Banks are cutting use of bonuses to recruit," Financial Times, 9/3/2010) indicated that they were offering fewer guaranteed bonuses as a means to lure top talent from the competition, especially investment bankers. Largely due to pressure from regulators, multi-year guarantees went down sharply in the aftermath of the 2008 financial crisis. Key findings of the IIF report were:
- Guaranteed bonuses were 5% of all bonus payments at these firms in 2009, 10% in 2008 and 8% in 2007.
- The percentage of guaranteed bonuses paid out in just one year was 99% in 2009, 92% in 2008 and 91% in 2007.
However, a subsequent article in Crain's Detroit Business ("Demand for accountants brings rising salaries, bonuses," July 20, 2014) indicates that 74% of all companies in North America offer signing bonuses, up from 54% in 2010.
In professional fields such as accounting, the figure is 89% of all employers. In accounting, the average signing bonus is between $5,000 and $10,000, with bonuses at the Big Four going up to $15,000.