Understanding Your Signing Bonus
By Wendy Burt
Ahhhh. The joy of the lump sum. Nothing says “welcome aboard” like a
signing bonus. With visions of that new boat or remodeled kitchen dancing in
your head, you’re eager to get that ink flowing. But before you commit your
Jane Hancock to the dotted line, make sure you know what you’re getting into.
And the Survey Says ...
According to a recent survey taken by the American Compensation
Association, 60% of the responding companies offer sign-on bonuses in hopes
of attracting and retaining employees.
Not surprisingly, the survey found that upper and middle management were
most likely to receive the offers, which were awarded as a flat dollar amount
84% of the time.
Of the payouts given, only 40 percent required a split pay, in which part of the
money was given upon hire with the remainder given after a set period of
time. The remaining 60 percent received their entire bonus upon hire.
On average, 35 percent of employees did not forfeit their signing bonus – or
need to reimburse the company – if they left the company, even within a short
period of time. This is especially encouraging for executives who might jump ship
before their first year.
Also encouraging was that of the upper management bonuses, a whopping 67 percent
were more than $10,000. (And you thought were kidding about the boat!)
Deciphering your signing bonus
Although all in all, the results of the survey were encouraging for executives,
it’s important to remember that signing bonuses are as varied as the
companies that offer them. Here are a few questions to consider when being
offered a signing bonus.
1. Will I still be eligible for performance bonuses?
Some companies offer a signing bonus in lieu of performance bonuses. If
this is not the case, ask when you’ll be eligible for your first performance
bonus and how often you’ll be reviewed (ie. once per year). Be sure you’re
clear on how your performance bonuses are determined (ie. sales goals or low
turnover rate, depending on your position).
2. Is this bonus split with part paid upon hire and part paid after a set
If your signing bonus is split, find out exactly when you’ll receive the
remaining part of your bonus. Also, be clear on what percentage is received
up front. You don’t want to learn later that they’re only offering 10 percent up
front and 30 percent after three-month increments.
3. Do I forfeit any or all of my bonus if I leave before a certain time
This is always a tough question because there may be concern on your part
– and the part of the employer – that the question implies and intention to
quit soon after hire. Still, it’s a reasonable question. If you do forfeit
some or all of your money, ask how much and what your time period is. It may
help you make decisions if you do decide to leave.
There’s also a chance that you may have to pay the money back if you
receive all of your bonus upon hire.
4. How much are other companies in this industry offering executives in my
position with my experience?
This is more of a research question, as the employer may not know the
answer to this question or may be hesitant to answer. Check the Internet
for employment sites that list average signing bonuses for your industry,
position and experience.
Signing bonus or stock options?
Many companies are now offering stock options in place of signing
bonuses. This is especially true with start-ups, whose stocks have
not gone public yet, the theory being that employees will take the chance
that their stock shares will be worth more than their signing bonus after an IPO.
The offer is certainly one to ponder, as some employees have literally
“struck it rich” overnight. On the other hand, most companies’ stock ends up
worth little – leaving you with nothing gained and a signing bonus lost.
Evaluating the company stock options
If you truly believe that taking the stock options may be a smart
financial choice, do your research.
When weighing the pros and cons of stock options, consider some of the
following questions to determine possible factors in the value of company
- Is the company growing or downsizing?
- Is the company a result of an acquisition or a planned expansion?
- Has the growth affected its profitability?
- What is the growth potential of the company’s products/services?
- What is the company’s market share?
- Who are its competitors?
- How do other employees feel about owning company stock?
- Have past employees chosen stock over signing bonuses?
- When does the company plan to go public? (if not already)
- What percentage of the company stock would you receive?
Of course, there are always other options. Why not ask for a split
between cash and stocks? Or how about a smaller signing bonus in exchange for
more frequent performance reviews?
If you’re feeling uncomfortable with the offer, speak up. There’s no harm
in attempting to negotiate. After all, despite the employer’s position behind
the big desk and stack of résumés, you’re the one holding all the cards – and
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Wendy Burt is a freelance writer in Colorado.