Signing Bonuses In The Current Economy: A Great Tool – But Proceed Wisely

The infamous “signing bonus,” once reserved for superstar corporate executives and elite athletes, has trickled down to all echelons of companies across industries, from Big Tech to retail stores to landscaping businesses. In the current labor market — the tightest it has been in years — companies across the board are discovering that without offering additional incentives (most often cash) up front, potential employees need only to keep scrolling to peruse a long list of other options.

Signing bonuses have a surprisingly long history, according to this recent commentary in Bloomberg Opinion from Stephen Mihm, a professor of history at the University of Georgia. They date back to Roman times when the Roman Empire gave soldiers who signed on an enlistment bonus called a “viaticum” — which was usually a few gold coins.  It was a smart strategy that helped Rome to staff its armies with soldiers who willingly went off to fight the barbarian hordes for a specific period of time.

The U.S. government continued this trend, when during the American Revolution, the military offered a cash “bounty” to persuade young men to sign on for what ended up a long, drawn-out war. After enlistment bonuses fell out of favor within the military, they soon found a new home in professional sports, with baseball teams recording the first signing bonuses for coveted players as early as the 1880s. The trend quickly moved to corporate America, and by 1997, one survey reported that 39% of all companies had begun using signing bonuses as a recruitment tactic, with employees from software engineers to trash haulers benefitting.

While many companies in our industry that are searching for strong hires might relate to a battleground scenario, the situation is not quite as dire as it may seem.

Laurie Kahn, president of Media Staffing Network, which assists media companies with their staffing needs, comes to the rescue with her “Sweetening the Deals” article in the September/October issue of The Financial Manager, the magazine for members of the Media Financial Management Association, of which I currently serve as chairman of the board. I want to share some of Kahn’s words of wisdom, designed to shed light on the current hiring environment and the best ways to use signing bonuses to attract the talent you’re looking for.

Kahn reminds us that while typically thought of as the “currency” of a signing bonus, cash is certainly not the only “bonus” employers can, or should, consider using to attract prospective employees. While many employees crave cash up front, money alone may not be enough to differentiate you from other companies looking to hire.

Millennials, in particular, value experiences more than material things, and have indicated in survey after survey that they would rather have more paid time off (PTO) or the option to permanently work remotely than receive a higher salary. Remote work has become a perk to other demographics as well, once they discovered the benefit of working from home after thousands were required to do so as a result of the pandemic.

That said, many employees still put a lot of stock in their work environment in terms of the teams in which they work and interface, in extended training opportunities and in guaranteed employment periods. Those who work in sales or business development may respond to higher base compensation plans or better commissions.

And, most prospective employees like the concept of growth opportunities within the company they work for. Researching what kinds of pay or perks appeals most to certain demographics and job roles will pay off when it comes time to offer incentives to sought-after employees.

Kahn notes that if you’re going to offer cash as an incentive, there are different ways to go about it. A signing bonus can be a lump sum, or can be paid out over a period of time. She advises that by spreading the payment over a longer period, you can motivate the employee to commit to staying longer, since they will typically forfeit the portion of the bonus that hasn’t yet been paid if they leave the company prior to a mutually agreed-to amount of time.

She also notes there can be tax implications with signing bonuses, since they’re typically viewed as supplemental income and taxed at a different — and usually flat — rate. If you suspect your would-be employee may balk at being taxed on this income, look for other tangible ways of offering a bonus. Kahn relates a story of a hiring manager who learned a prospective staffer needed an upgraded TV, and when the new hire signed on, the manager purchased it for them.

Keep in mind, though, that in a market where signing bonuses are available almost everywhere — and you have probably seen placards in grocery stores, fast food restaurants and big box outlets offering new hires a cash incentive up front — signing bonuses can lose their value. Someone simply looking to cash in now and disappear when a different opportunity with another upfront bonus presents itself is akin to the Civil War “bounty jumpers” who collected a sizable amount of cash to sign up for a particular regiment, only to skip town and repeat the scam elsewhere.

How much should a signing bonus be? Many factors influence this decision. It depends on the how the company has gone about paying bonuses in the past, as well as current market conditions. Right now, with an incredibly tight labor pool, everyone from a bartender to a sales director is a candidate for a signing bonus. Across industries, research shows that in a more typical employment environment, managers typically receive between $10,000 and $50,000, whereas administrative workers more often receive less than $5,000.

Also bear in mind that eventually the employment market will settle out, and we may one day return to the days of the post dot-com bust, when millions of employees were out of work, professionals with advanced degrees considered themselves lucky to get jobs as baristas and signing bonuses were once again offered only to high-level executives.

Until then, be selective and smart and how you go about determining who you offer a signing bonus to, and if that incentive should be money or something intangible that may be even more attractive to that prospective hire. By thoughtfully considering all options, you’ll stand the best chance of signing employees who are the best fit for your teams.

Dave Bochenek serves as chairman of the 2021-22 board of directors of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. He is senior vice president/chief accounting officer of Sinclair Broadcast Group and can be reached at [email protected].