Last month I wrote about rising signing bonuses, and 75% of our readers reported both $ value and % offers were rising.
Contributing factors include talent shortages, inflation, sagging tech valuations, and remote work, among others.
Signing bonuses play a valuable role - they get offers over the line.
But there are downsides, especially as the world becomes more pay transparent.
Signing bonuses are a classic source of cost leakage.
Most companies don’t have guidelines around signing bonuses. As a result, they can be surprisingly hard to track; when I was in comp, it could take us a quarter to figure out what was going on.
How much does this add up?
Let’s say you hire 1,200 people per year. 30% have a signing bonus, average of $25,000 each. That adds up to $9 million per year, or $750,000 per month.
How do you know they’re worth it?
A little structure would go a long way.
Signing bonuses fly under the pay parity radar.
Pay parity exercises usually focus on base salary or structural comp; growing one-time bonuses escape scrutiny and skew cash-in-pocket outcomes.
If we all make $125,000 base salary, but 30% of us got signing bonuses, is that really fair?
It might be. But it has implications for messaging.
Carefully crafted communications on compensation philosophy land flat when employees learn that “exceptional” signing bonuses are increasingly the norm and they didn’t know to negotiate.
What is the purpose of a signing bonus? How can you drive the kind of consistency that you can stand behind?
A pay transparency relief valve, for better or for worse.
There is growing societal pressure to justify differences in pay. This has an interesting potential consequence.
We may see some companies over-rotate on narrowing the spread of base salary, and “artificially” equalize pay. In this scenario, higher performers, or more valuable talent (in market terms), are underpaid; lower performers or less valuable talent are overpaid. It’s a cross-subsidy.
If companies artificially narrow the spread in base salary, other forms of comp like signing bonuses would help “clear the market.”
Comp leaders can look to a more familiar practice with similar effects: tight focal budgets.
When you know the market has moved 5% and Finance gives you a budget of 2%, what happens? Managers give everybody something (peanut butter), and then afterwards frantically negotiate retention bonuses for the underpaid top performers; or experience elevated attrition.
See any other downsides? Leave a comment below.
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