The ultimate guide to sign-on bonuses

Picture this - after months of searching for that key hard-to-fill role you’ve finally found the star candidate you were looking for. Success! You put together a great offer but it’s not enough due to [enter a wide range of possible reasons!]. Is it time to offer a sign-on bonus and bolster your offer to seal the deal? Let’s talk through what to think about before you go there.

You really need a sign-on policy

First and foremost. This doesn’t need to be a 10 page (boring 😅) document. What you’re looking for is a framework that helps you make informed decisions. A policy will drive consistency and clarity in your approach.

Remember to work with your Talent Acquisition team - they’re your strategic partner and ears on the ground. And ultimately, they’ll be the reward champions and custodians of this policy. Some key things to think about when you’re collaboratively designing a sign-on policy:

• Who would this policy apply to: is it for all levels, roles and locations or a subset of them? Whichever approach you chose, consider how equitable the outcomes will be and how they align with your reward and business strategy.

• What circumstances grant a sign-on: define the relevant criteria. It may be that these are relevant for really hard to fill roles, when you need to buy candidates out of existing schemes (bonuses or equity for example) or to compete against another offer.

• Bonus amounts: understand the budget available (and who the owner of that budget is!) as well as any market data you can find. You may wish to set a percentage range to give you flexibility and align the bonus to the base salary you’re offering. A very important thing to bear in mind when thinking about amounts is whether regular salary progression is likely to catch up when the sign-on “expires”.

  For example, you are thinking of offering a 10,000 sign-on to a candidate. This represents 20% of their salary. In this example, you’d want to consider whether the person is likely to progress their salary by 20% in the next round of salary reviews you do. If the answer is no, you’ll want to explain this to the candidate and manage their expectations as their total cash compensation will lower in future when they don’t have a sign-on bolstering it.

• Payment cadence: you can get as creative (or not) as you’d like here. Look to balance how attractive your offer is to the candidate with achieving the goal you’re after. If you’re looking to retain the candidate long term, the best solution may be a staggered sign-on bonus over a set period of time. For example, an amount upon joining and a further amount 6 months later. If the bonus was meant to cover an upcoming payment from their previous company or fend off a competing offer, paying the full amount upon joining may be the more reasonable approach.

• Legal and tax considerations: take into account legal and tax advice where needed. A common approach to “protect” return on investment tends to be to add clawback clauses on the candidate’s contract so they have to return all or part of the sign-on should they leave within a set period of time. For tax purposes, each location will have its own regulations around the tax treatment of bonuses. Be sure to understand what the legal position and tax implications are to build a robust proposition in the markets you operate.

Peer parity and equity matters

Sign-on bonuses can be a helpful tool to attract talent if used strategically. But at the core of your offering should be a fair and consistent approach to ensure equitable outcomes. Here’s some top tips:

1. Communicate transparently and with purpose. Ensure candidates as well as internal employees understand how, when and why sign-on bonuses are used and the rationale behind them.
2. Monitor, track and measure. Collect data on sign-on bonuses. You want to understand who are the recipients of these and whether there’s any trends - do they typically all go to a specific location or level or type of role? Correlate this with the intended aim and goals of the policy. If the two don’t align, investigate further and put measures in place to correct any inequities.
3. Review and iterate. Regularly review your policy to make sure it remains relevant and aligned with your strategy. Most of all, review to validate whether it serves the purpose it aims to.