What You Need To Know About Signing Bonuses

By Chris Kolmar - Mar. 15, 2021
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You’re almost there. You wanted something new, so you revised your resume and learned a few new marketable skills. You read through countless job descriptions and reached out to everyone in your network. You applied to several positions and heard back from a few companies. You went through phone screenings and interviews.

Finally, when it’s all said and done, you get the offer. Depending on your situation, you may now enter the phase of contract negotiations. You have probably heard of salary negotiations, but you might not know that with salary negotiations can come another monetary benefit up for discussion. This is the signing bonus and it’s a crucial part of certain job offers.

What Is a Signing Bonus?

A signing bonus is an incentive that a business submits to a prospective employee during a job offer or contract negotiation. By signing the deal, the employee is rewarded with this bonus.

Usually, certain stipulations come with the bonus such as a required amount of time employed. If the stipulations are not met then you are expected to pay the bonus back.

A signing bonus is a one-time payment and this gives us insight as to why companies offer them in the first place.

Why Do Companies Offer Signing Bonuses?

Bonuses are rarely given without reason and a signing bonus is no different. Any sort of bonus has a financial impact so the company has to be sure they will see a return on their investment.

An employee is an investment as much as any other part of the company’s calculations. A signing bonus is offered because the company believes the employee is worth it.

Certain circumstances determine whether or not a company will offer a signing bonus when they submit their job offer. It can be based on several factors that include:

  • The type of industry. There are specific industries where signing bonuses are common in contract negotiations. You may have seen them offered by professional sports teams. Particularly for high-paying players who are crucial to the team’s success, the ownership will use a signing bonus to sweeten the deal and keep the player happy.

    When signing bonuses become common in the industry, they become a form of leverage that employees can use to keep the negotiations preferable. Generally, this only occurs in large industries that generate a lot of revenue from the contributions of a small amount of highly skilled workers.

  • The type of position. It is not only the industry but the role within the industry that can lead to a signing bonus. This is based on how important the position is to the company’s success. For that kind of situation, a potential employee is likely to face difficult tasks in their upcoming role and will want to be compensated accordingly.

    For example, executives and upper management roles are considered crucial to a company’s success so the company will provide a signing bonus to reward the hiree for accepting high stake responsibilities. Smaller roles, such as a legal specialist, may also be offered a signing bonus because their niche role is so important.

  • The skills of the employee. Your skill set has an enormous impact on contract negotiations. Specialized skills, especially ones that take a long time or a lot of money to develop, will be highly sought after by companies. You will be in high demand either due to the rarity of your skills or because the company has a great need for them.

    For example, a network security consultant who is offered a job as a strategy analyst for a Fortune 500 company. This person is an expert because they have devoted years of their life to the field and they have a high aptitude for it.

    Their skills are important to the future success of the company so the company offers a signing bonus to help convince this person to join.

  • Competition. Since signing bonuses can depend on the industry, position, or skills of the employee in question, it follows that competing businesses will also be interested. Signing bonuses help sway a prospective employee. It shows the level of seriousness the company is willing to take to hire the person.

    Imagine if you were a nurse. The healthcare industry is expansive and the nursing position is in high demand. If you had the skills of an experienced nurse you might find yourself recruited by a busy hospital. To compete with other hospitals, this potential employer could offer you a signing bonus so as not to lose you.

  • Internal accounting. Sometimes in salary negotiations, your potential employer may be unable to meet your counteroffer because it conflicts with their budget.

    To maintain salary equity, this company may offer you a signing bonus instead to keep you interested. This company looks for a way to be flexible within the limitations of their finances.

    If you find yourself in a situation where your salary counteroffer is met with a signing bonus, make sure you understand the pros and cons of your decision. A lower salary with a signing bonus is good in the short term, but in the long run, you’ll make less than you would’ve made.

  • Compensation for lost benefits. If the company with the offer knows that your previous job provided benefits, such as vacation time, that they cannot match, then they might put forward the signing bonus as compensation. The bonus acts as a way to make the transition easier.

The Pros and Cons of a Signing Bonus

Signing bonuses sound great at first. An extra lump sum of money for a new job would entice almost anyone. However, there is a catch and a signing bonus comes with its downsides. That is not to say it is a terrible deal, but if you are to accept one, you want to make sure you take into account the benefits and the costs.

Some of the pros of a signing bonus include:

  • Instant money. If you are in a situation where the extra money could help, then a signing bonus is a great deal. Especially if you need to relocate for the job, the signing bonus can help cover some of the new expenses.

  • Extra compensation. If you get a signing bonus on top of an acceptable salary offer, then the extra compensation is an obvious plus. You could see this as a reward for your hard work that led you to this offer.

  • Future negotiating tactics. Once you take a signing bonus, you can use this for any future contract negotiation with either your current or a future employer. The signing bonus sets a precedent that has legitimacy within the discussion.

With all that said, a signing bonus has its costs, which include:

  • Time constraints. Most signing bonuses come with the stipulation that you have to work at the company for a certain amount of time. If you leave before that agreed time, then you have to pay back the bonus. You have to make sure you can give a long-term commitment.

  • Long-term opportunity cost. A signing bonus might be used by the company to hire you without a higher salary. If you work at the company for several years, then the money you gained from the bonus will be less than the money you would have made with a higher salary.

  • Taxes. A sudden increase in income will come with a tax cost. Sometimes a business will offer to cover the taxes of the signing bonus. However, if they do not, then you must factor in this cost to your final negotiating price.

How to Negotiate for a Signing Bonus

A signing bonus is not a final offer or an impossible request. Many companies are willing to compromise with potential hires to bring them on board. If you find yourself in a situation where you need to negotiate a signing bonus, it can be helpful to prepare with a plan.

Consider the following steps to give you a general framework to succeed:

  • Be offered or ask. First, you need to know what started the negotiation; were you offered a signing bonus or did you ask for one? Neither situation is out of the question, but how the conversation starts does determine how it will proceed.

  • Research your value. Never go into a negotiation blind. In this case, you are negotiating over yourself, so you need to know your market value. Research what your peers who have similar experience and skills have received. If you can, network with someone within the company to gauge what the typical signing bonus looks like.

  • Understand other compensation options. Remember, a signing bonus can take away from other compensation options. Make sure you know what you are giving up to get this bonus and be sure that you are happy to do so.

  • Affirm your value. Now that you have as much information as you need, declare why you deserve the amount you believe you are worth. List your reasons, such as the value of your skills and the cost of what other compensations you are setting aside for the bonus.

  • Use other potential bargaining options. If you have another contract negotiation occurring simultaneously, then use the other offer as a bargaining tool. If companies are competing over you, then you have leverage and should use it.

  • Counteroffer and compromise. In an appropriate amount of time and fashion, you and the company will exchange counteroffers. Don’t be so stubborn as to lose the opportunity. At the same time, don’t be so amenable as to lose your value. In the end, you want to come to an amount that you and the company both can be happy with.

Final Thoughts

Before you officially sign your contract, make sure to read all the details. When it comes to the bonus, weigh it against other forms of compensation. As always take the appropriate amount of time before you come to a decision. If you find yourself stuck, ask trusted friends and family for advice to get different perspectives on the situation.

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Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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