When I started this blog 5 years ago, I didn’t know the term sign-on bonus. Back then I suggested offering employees a “welcome bonus” as an unconventional way to attract talent. It turned out it was already a common practice – one that gained a lot of popularity in the recent years.
Now, 5 years later, I still think sign-on bonuses need reinvention. What’s different between my original idea and all of the implementations I found is the reasoning behind such a policy, and I find my reasons closer to the “pay-to-quit”, first offered by Zappos in 2008.
The pay to quit policy doesn’t need to be strictly financial. Once I advised a company to offer extended notice periods to the employees being fired, so they can look for another job. This is nearly the same, as the company paid 2 month salaries to the employees, without requiring them to do any job or even to be present at the office. Such policy eases the firing of people when the company haven’t recorded the poor performance reviews (and a lot of small companies don’t pay enough attention to the possible legal issues of terminating contacts), but I would offer similar policy not just because of the legal reasons.
If you give anyone leaving the company – no matter the reason and if it was initiated by you or by the employee – some extended notice period, in which you will pay the salary, but won’t assign any new tasks, the company will benefit as well. First, you have extended period for replacement and the current employee will still be able to ease the transition. So invite people who are not happy with their job to discuss this with their manager, and if there is nothing you can do – provide them with the time and support to find a better one. All you’ll ask them is to be available in cases you still need their knowledge, either for resolving a problem or for training the new person. This is what I call a “safe exit” and I’ve written about this recently in my article “Keeping your employees”.
Back on sign on bonuses – they might be used to attract people, but what I see them for is providing a “safe entrance” to the company. People don’t know what is like to work at your company and they can’t get a clean picture from couple of interviews. Most of them won’t spend a lot of time getting to know the company better in order to decide whether to accept your job offer or not. This creates some risk for them – if they quit their current job, but don’t like the new one either, they will have to look for job again. This drains their energy, looks bad in their CVs and often just makes them feel bad.
To ease this situation, I offer you to pay any newcomers the first 3 months – regardless if they stay or not and how long was their actual gig with you. This makes your offer safer – at least 3 months are guaranteed.
This period however may be not enough to know the company and the job well enough – one may need 3 to 6 months to feel a job, so the original problem of risking to join and then look for another job is not solved at all. Better option would be to pay 3 salaries in addition to whatever time the person spend in the company. But then, why not pay this bonus to the person regardless if he stays or not, so the money don’t play any role in the decision?
Critics of the sign-on bonus say that it gives an incentive to people to join the company even if they don’t mean to stay. If they are leaving their current job anyway, why not get some sign-on bonuses while searching for the next gig? That’s why a lot of companies pay the sign-on bonus after few months. But this those not solve the problem either. Some companies push the bonus even further in time – after the first year – or require people to sign contract not to leave at least a year. Such offer does not work as a safe entrance anymore. And it doesn’t work as attraction either. It resembles more of the retention bonus – companies pay extra money each couple of years, just because you stay with the company.
The retention bonus gains a lot of popularity as well, but in just postpone resignations until the person, thinking of switching jobs, gets the bonus. And money are the wrong reason to stay at a company anyway.
Provide a safe entrance and you’ll get more talent in the company; provide a safe exit and you’ll have more engaged employees.