Why are employees given a “signing bonus”? Isn’t the salary enough incentive to join?
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I’ve never had one but I would think it would just sweeten the deal a bit. Not every job is necessarily a raise in pay or status. Maybe they had to move or their previous company was toxic (emotionally-wise). I also think of it as apartment complexes that offer “FIRST MONTH FREE!” (But you’re paying first and last month as a security deposit 🤷🏼♀️)
Just a thought. 🙂
The best-qualified candidates may have several options. A $10,000 signing bonus may be something that pushes one option ahead of the other. I’ve seen fast food restaurants offer a $100 signing bonus. To someone looking for a job they may be desperate for cash ASAP so this makes the job very attractive.
Usually it’s to persuade you because there might be other options available. The only signing bonus I’m really knowledgeable on is the singing bonus in professional baseball. A player might get drafted out of high school late in the draft. The signing bonus is to supposed to persuade him to sign with the team and join their minor league association to start their professional career. However, a player getting drafted out of high school more than likely has some great options to play in college as well.
Pros of signing are:
Getting that signing bonus
Playing pro ball
Cons of signing are:
Might not ever make it because you aren’t a highly regarded prospect
Pros of going to college are:
Get the chance to build a great college career and be a much highly regarded draft prospect a few years down the road
Get a college degree Incase baseball doesn’t work out
Cons of going to college are:
No signing bonus
Career might get derailed and you don’t get drafted later
So yeah the salary is incentive but if there’s multiple companies offering a similar salary or other good aspects of a job the signing bonus might be a good way to make some decide on that company
A large sum of money now is often better than a large sum of money later. Let’s say a person gets a signing bonus equal to 3 month of wages. With that bonus, they can instantly:
* Buy a new car to drive to work
* Make a down payment on new house closer to work
* Pay off debts
* Buy things that will help them settle into their new job (suit, office supplies, computer, etc.)
* Pay the registration fee for new daycare/child activities.
They would be able to get these things if they waited three months, but it is better to get them right away.
Someone on the finance or HR side can probably add to this, but in my experience there are a few reasons just off the top:
1. Because of the complicated legal and tax implications, as well as varied costs and keep things fair and straightforward between candidate, it is often easier to give a “signing bonus” than to offer a relocation package. If a company is looking outside their local geographic area a signing bonus may help attract outside talent by making it easier for them to relocate to the job’s location
2. Some people are hesitant to leave their current position due to annual or quarterly bonus structures that mean leaving their current position results the forfeiture of hundreds/thousands of dollars they “earned” but hasn’t been paid out yet, and due to its classification as a bonus isn’t required to be paid on departure. A signing bonus can help make up for that lost income from changing jobs.
3. Related above, Sometimes people may have outstanding obligations with an employer, such as tuition reimbursement programs or vacation time which if they leave before the obligation is met (time after tuition reimbursement is paid, or before the front loaded vacation time is actually accrued) will be withheld from their final checks. A signing bonus makes it easier for people to not worry about those outstanding obligations to their current employer.
4. A simple business budgeting consideration combined with a need to attract qualified talent. If they are trying to attract people in a competitive industry or skill set, It may be easier to budget a standard reoccurring salary for the employer, but that won’t differentiate them from other employers, so a signing bonus can be a one-time expenditure to get the eyes of the talent you want to attract
It depends on the job and the available labour market. When I was in first year of a two year healthcare program, the graduating class was emerging right when a lot of departments were expanding or had people retiring. They were offered signing bonuses, 6 months of room and board and were even flown in for interviews. Just in my location, there were 100+ openings for a class size of 40 or so.
Then came my graduating year and everything dried up. While many of my classmates found jobs at their clinical rotations, I had nothing (but I didn’t want to work in the city). At the end of the day, I still had 3 job offers, but the days of signing bonuses were long gone.
Because a signing bonus is a way for them to appear more attractive with a temporary expense. This works well whether the employer is paying market rate and wants top notch talent without paying above that and messing with their future budget. If a really good candidate is on the fence about picking between my company or another company, the signing bonus might just push them over to our side while being a temporary expense. (I.e. the cost is one time as opposed to a permanent wage increase that carries over quarter after quarter and is very likely more expensive for the company).
*or*
if the employer is paying below market rate and wants to appear closer in line to or above market rate, it mainly targets people that doesn’t process delayed gratification as well or are more desperate for money without a permanent increase in wages. If I’m offered a $5,000 bonus but the salary is $3,000 a year below market rate they save after the second year.
One primary example is the military that offers signing bonus to lure teenagers of age to sign up despite the fact that they could be earning more in the long run if they do vocational training or work for wages in the open labor market. There are many strategies and benefits they use to appear more attractive and this is just one of them.
TLDR: it’s just another method to incentivize people to join just like other benefits. There will be people that will value a temporary bonus over higher wages if other employers are on the fence about their candidacy.
If the new huge risks losing out on a bonus if they switch the new firm cam help ease the pain with a sign on bonus. Other option would be a significant increase in salary but most won’t do that.
If salaries are similar, it may be the incentive to ge t them to choose you over another offer, without giving more money annually by offering higher salary. Also, so jobs may require up front expenses like a new lawyer needing to buy a bunch of suits, or somebody relocating to a new city needing money for movers, perhaps breaking a lease or selling a house, and other related costs.
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