Why Offer a Hiring Bonus Instead of a Higher Salary?

by Dana Severson

You want to fill a recent vacancy as fast as possible, and you know money is one of the most effective ways to get someone to sign on the dotted line. A competitive base pay is always an option. But a signing bonus may be just as attractive. In fact, this type of benefit could be a better way to go when internal equity is limited.

Minimize Expenses

Though the out-of-pocket expense may be greater, offering a signing bonus can save you money in the long run. Signing bonuses aren’t part of an employee’s salary. So when it’s time for a merit increase, the adjustment is made off of his base pay, not the compensation package as a whole. For example, let’s say you offer a $50,000 base with a $10,000 signing bonus. At review time, you give a 5 percent increase, which works out to an additional $2,500 per year. If the original offer was a $60,000 base, you’re looking at a $3,000 bump in pay for that same 5 percent increase. It may only be $500 in this example, but the added expense is compounded year after year.

Remain Competitive

If your company has a set salary range for the vacant position, you could be left with very little room to negotiate a competitive offer. This is problematic when trying to fill highly specialized roles or when competing with other companies for the same pool of candidates. A signing bonus can make up the difference, helping to bring the offer more in line with those of your competitors.

Show Interest

Everyone wants to be wanted, and offering a signing bonus acknowledges an increased interest in that candidate. It sends a message that you’ll do anything in your power to secure her talent. It’s also an indication of your commitment to that person as a potential employee. By showing someone how much you really want her to work for you, you could end up tipping the scale in your favor.

Account for Losses

When someone leaves a job, especially one he’s had for years, he could be walking away from a myriad of benefits -- not only yearly bonuses, but also vacation days, stock options, transportation benefits, parking benefits, phone and other incentives. Some of these perks may not be part of your company’s compensation package, and a signing bonus sometimes helps to make up for these losses. The same can also be said for candidates not eligible for an upcoming merit increase, and would then need to wait over a year for your company’s annual compensation changes.

Overshadow Detractors

Like job candidates, your company has its own set of strengths and weaknesses. Strengths are nothing to worry about, but you may need to compensate for any potential detractors that accompany employment. Is your company located way out in the suburbs? Are employees required to travel a lot for work? A signing bonus could help to overshadow some of the less desirable characteristics of the job -- although higher pay may do the same, but you’re then dealing with an added annual expense.

About the Author

Based in Minneapolis, Minn., Dana Severson has been writing marketing materials for small-to-mid-sized businesses since 2005. Prior to this, Severson worked as a manager of business development for a marketing company, developing targeted marketing campaigns for Big G, Betty Crocker and Pillsbury, among others.

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