Understanding Your Signing Bonus
Submitted by SharpMan Editorial Team on Sunday 10th October 2010- Understanding signing bonus variations.
- Signing bonus vs. stock options.
- Negotiating for your perfect signing bonus.
Nothing says "Welcome aboard" like a big lump of cash. With visions of yourself behind the wheel of your new set of SharpWheels, you’re eager to get that ink flowing. But before you commit your John Hancock to the dotted line, make sure you know exactly what you’re getting into — there’s more to consider than just the amount:
How Common Are Signing Bonuses?
A recent survey taken by the American Compensation Association found that 60% of the responding companies offer signing bonuses in the hopes of attracting and retaining employees. To no one’s surprise, the survey found that upper and middle management were most likely to receive the offers, most of which (84%) were awarded as a flat dollar amount.
Only 40% of the payouts required a "split pay," where part of the money is paid upon hire, with the remaining amount paid after a set period of time. The remaining 60% of employees received their entire bonus upon hire.
On average, 35% of employees were not required to forfeit their signing bonus — or reimburse the company — upon leaving the company, even if they chose to leave within a short period of time after joining. Good news if you’re known to develop a regular "Seven Month Itch."
Also encouraging is that, of the upper management bonuses offered, 67% were more than $10,000. (And you thought the SharpWheels were an exaggeration!)
Understanding Your Signing Bonus
Although all in all, the results of the survey were encouraging, signing bonus amounts vary as much as the companies that offer them. To help you evaluate your particular situation, here are a points to consider if you’re offered a signing bonus:
One: 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 with the company you’re signing with, ask when you’ll be eligible for your first performance bonus and how often you’ll be reviewed (e.g., once per year). Be sure you’re clear on how your performance bonuses are determined (e.g., sales goals or low turnover rate, depending on your position).
Two: Is my bonus payment "split" between time of hire and another set time?
If your signing bonus is split, find out exactly when you’ll receive the remaining part of your bonus. Be sure to confirm the percentage that you will receive up front. You don’t want to learn later that they’re only offering 10% up front and 30% after successive three-month increments.
Three: Do I forfeit any or all of my bonus if I leave before a certain time period?
This is always a tough question to ask, because there may be concern on your part — and on the part of the employer — that your question implies an intention to quit soon after hire. Still, it’s reasonable to inquire as to the terms of the payment.
If leaving requires you to forfeit some or all of your money, ask how much and what time period triggers the forfeiture. Remember that some forfeiture clauses require you to give up spilt bonus payments not already paid, while others require you to actually pay back money already received — a huge bummer to those who spend first and determine employer compatibility later. Either way, having all of this information up front will help you make timing decisions in the event that you do decide to leave.
Four: 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. Having this information at your disposal will ensure that the bonus you accept is on par with industry standards. For information of this nature, check employments sites online, including http://www.benefitslink.com, http://www.wetfeet.com and http://www.careerguidetoday.com/.
Taking a Signing Bonus Over Stock Options
Many companies, especially start-ups, are now offering stock options in place of signing bonuses. For companies whose stock has not yet gone public, the theory is that employees agree to take the chance that their shares will be worth more than the signing bonus once the company goes public. For public companies with skyrocketing stock prices, employees bet that the options they receive will increase in value.
Either way, be clear in your understanding that taking options over a signing bonus is the equivalent of receiving cash and then turning around and buying stock in your new employer. You are choosing to invest your money with the same risk levels of any other stock market player. Sure, some employees from some companies have "struck it rich" overnight. On the other hand, other companies’ stock may lose value, thereby making the signing bonus cash more appealing.
If you believe that stock options in your new company may be a smart financial choice, do your research. Consider some of the following questions to determine the value of your new company and its stock:
- Is the company growing or downsizing?
- Is the existing 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?
- If it hasn’t already, when does the company plan to go public?
- What percentage of the company stock would you receive?
Negotiating for the Perfect Bonus
The key to negotiating a signing bonus is information. The more you know about what others are offering and the more you know about what your prospective employer is offering others, the better your position. For example, consider asking for a split between cash and stock options, or a smaller signing bonus and more frequent performance reviews. Or for cash poor start-ups, consider tying a bonus or pay raise into the next successful round of financing. The key is to arm yourself with information and be prepared to be creative about getting what you want.
In other words, speak up and attempt to negotiate. Remember, despite the employer’s position behind the big desk and stack of résumés, you’re the one holding all the cards — and the pen.
This article last updated on Sunday 12th February 2012