Signing bonus: Overview, definition, and example
What is a signing bonus?
A signing bonus is a one-time financial incentive given to a new employee or contractor when they sign an employment contract or agreement. It is typically offered as a way to attract highly skilled candidates, incentivize individuals to join a company, or compensate for the potential loss of benefits or opportunities from their previous employment. The signing bonus is paid in addition to the employee's salary or hourly wages and is often contingent on the employee’s start date and continued employment for a certain period. It may be paid upfront or in installments and is usually specified in the terms of the employment agreement.
For example, a tech company might offer a signing bonus of $20,000 to a software engineer who is relocating to accept the job offer.
Why is a signing bonus important?
A signing bonus is important because it serves as an effective tool for employers to attract top talent, especially in competitive job markets. It provides immediate financial benefit to the new employee, which can help them transition into their new role or cover relocation expenses, lost bonuses, or other financial considerations. For employees, a signing bonus can be a motivating factor when evaluating job offers, providing a financial boost at the start of their new position. Additionally, the bonus can help employers secure a commitment from candidates, ensuring they join the organization without considering competing offers.
Understanding a signing bonus through an example
Let’s say a marketing manager is considering two job offers. One company offers a higher base salary, while the other company offers a competitive base salary plus a $10,000 signing bonus. The signing bonus could tip the scale in favor of the second offer, as it provides the manager with immediate financial benefits to help cover moving costs, a gap in compensation, or other personal expenses. The bonus is a one-time payment, offered as part of the overall compensation package.
In another example, a financial institution offers a new employee a signing bonus of $15,000 to join their team, as they need to replace a departing employee quickly. The bonus is paid out after the new employee has completed their first 90 days with the company, encouraging them to stay with the organization for a period of time.
An example of a signing bonus clause
Here’s how a signing bonus clause might appear in an employment agreement:
“The Employer agrees to pay the Employee a signing bonus of [$Amount], to be paid within [insert timeframe] of the Employee’s start date. The signing bonus is contingent upon the Employee’s continued employment for [insert number of months], and in the event of voluntary resignation or termination for cause within that period, the Employee shall be required to repay the bonus in full.”
Conclusion
A signing bonus is a financial incentive used by employers to attract talent, compensate for relocation or opportunity costs, and incentivize job acceptance. It provides immediate financial benefits to the employee while benefiting the employer by securing the candidate’s commitment to the role. Signing bonuses are commonly used in competitive job markets and industries where specialized skills are in high demand.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.