December 15, 2021

Can Sign On Bonuses Contend With End of Year Bonuses?

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The holidays are right around the corner and so are year-end bonuses. Wait, no…those don’t get paid until March.

And so begins wait-it-out season, where job seekers put things on pause, waiting for that money to hit their account. Unless another company pays a fat sign-on bonus.

But there’s a lot more to it than that. It’s not just cash people think about, but equity and every other form of comp. And not every job seeker is worried about bonus dates when all they really want is a little more transparency.

If you’re hiring, it’s a real phenomenon you’ll have to deal with. Matt Tokarz and James Hornick gathered some data and looked at all the angles in the latest episode of the Talent Insights podcast “Can Sign-On Bonuses Contend With End of Year Bonuses?”

Episode Transcript

All right, everybody. Welcome to the talent insights podcast brought to you by Hirewell. Today I’m joined by my friend and colleague and fellow whiskey enthusiast, Matt Tokarz. How’s it going? I’m doing good. Getting ready for the holiday here. We have a nice end of year topic to discuss. So I thought it’d be a cool one to kind of knock out.

How are things? How’s everything in your world? Nothing’s ending. Nothing’s slowing down. Everything is full bore as if it’s, you know, mid July right now. So it’s great. But at the same time, like it could use a week or two off. Yeah. It was years past where December was a completely dead month. Anyways. I look back at them fondly, although I probably shouldn’t, anyways. So

what we wanted to talk about, and this is a topic I wanted to make sure we did this one before the end of the year. Sign-on bonuses and end of year bonuses. So I think we’re going to title this something like, “Can sign on bonuses contend with end of year bonuses?”. To give a little bit of background to everyone out there,

if you’re not familiar, end of year bonuses are something that companies do if you stay for most of the year, you know, through the end of the year you get paid or you get a bonus, but they don’t typically pay it out until March or April. In Q1 usually. Yeah, so standard operating procedure. It’s how a lot of companies do it.

And it’s highly effective as a retention tool because what we’ve always seen kind of anecdotally, was there a lots of candidates who just stop looking like from Thanksgiving on, even through like early Q1. So figure from November, December, January, a lot of candidates put the brakes on it just because in a market like this, where it’s hard to hire kids that much harder.

It’s been a tool that I’ve seen utilized that, you know, at the end of the day people would much rather just stick it out the last couple of months, even if they hate it because they know that they’re going to get 10, 20, 30% depending on their position. And that could be a lot.

Yeah. So now there’s the other side of it too, is there is this good old sign-on bonus, you know. So if your bonus is going to get lost, the easy fix for that as the company hiring you can just give you the same amount of cash up front to get you to join. But there’s a couple of things to this.

So we did some research on this. We actually put some, got some data for some polling we did. We also collected some anecdotally, both with internal staff and talk a lot of people kind of externally to kind of put this together. There are some things you need to kind of think about here is 1. Sign on bonuses as a make-up for end of year bonuses.

There’s the internal equity piece, right. If you’re not giving everyone an internal sign-on bonus when they start, you’re going to ruffle some feathers, you know. Just because you’re hiring one, you might be hiring multiple at the same level, but you’re giving bonuses to some and not others.

Is that an issue? 2. Feasibility. Not everyone can do it. It’s just simple as that. If someone’s got a 50K bonus coming their way and you’re trying to make a bunch of hires, like it’s a lot of money if you’re trying to like make up for someone else’s bonus somewhere else. And the last one, which I want to come back to, and this is the one thing that I actually was not quite as aware of myself, which I’m always ashamed when that happens is kind of the transparency component.

So there’s, it’s definitely an issue in terms of end of year bonuses, how transparent they are with employees may or may not make them more likely to want to stick it out or might rub them the wrong way. And similarly transparency with sign-on bonuses and how that kind of goes back to the internal equity piece.

But we’ll come back to that and kind of cover it in a bit as well too. Not to not let you talk here, but let me go right into the data because I’ve put all this together. We did some polling on LinkedIn, which is obviously the most accurate way of doing polls in the world.

But these ones are fairly straightforward. So we asked two questions over the last like month or so. One, I want to get a sense for what companies offer sign on bonuses. Like how many actually do it. And I also want to get a sense for like the job seeker sentiment. Would you take a sign on bonus? Would that make you leave your job earlier?

So put some parameters around that. So the first question was, is your company ever offered sign on bonuses for new hires? I had four answers. Yes, it’s a common practice. Yes, but only in certain situations. No, not something we do. And then I had the, I have no idea because people are going to click on polls. So I subtracted those out.

21% of companies and we got like 700 people voting on this. So it was actually a decent sample size. 21% said it’s common practice. 36% said in certain situations. So maybe in slack- if it makes sense, it gets one on board. And 43% said, no full stop, not something we do. So it’s actually a fairly even split. Roughly a little over 50% of companies do do some sort of sign-on.

You know, 43% little under that said they don’t. Obviously it’s not super accurate, but I think it’s accurate enough to know that like it’s kinda split, right? It’s funny you say that. My expectations in it, it might actually be more accurate is that the people that said no, it’s not something that we do may just not know because they didn’t get one too.

Like it could be more of a select situation, sort of a spot for them too just cause they didn’t receive it themselves. Entirely possible. Yeah. Like I said, this is not the most scientific but at least give me an idea. Now, the second one was more interesting and there was actually a couple of takeaways for it.

So asking job seekers, if you have an end of year bonus coming, would you start a new job before receiving it? And slash do sign on bonuses factor in? So we got almost a thousand votes on this, so it was like 960 votes. Yes, only if the sign-on is equal, was the first option. So people expect a full even payout.

And that was 46% of people. That was a lot. Second was yes, even if the sign-on is a little less, that was 16%. Some people do it for a little less. Third said yes, but no sign on needed. They’re ready to make this move. It’s the right move for them, they’re ready to bail. That was 13%. And then the most interesting one was, no I’m waiting, no matter what, 25%.

So I thought what was interesting about that, well first off there’s three ways looking at this. The candidate poll is just smaller in bonuses, right? You’ve got 46% of people saying they’re only going to take if the sign on is equal and you were saying 25% saying no matter what, I’m not leaving. And I guess I should hit on that point.

It is ridiculous to hear someone said he would not leave even if they had an equal sign on bonus. But I think it says a lot about how people’s mentality is about like money they’ve earned. Now you can say, okay, but give that person a sign on bonus, they’ll move. At the same time too people with that mindset are definitely part of the population that just aren’t looking, right?

There’s people who know they have bonus money coming and they’re just like, recruiter’s going to hit them up, they’re going to say no. They’re not even going to respond until something comes out. Anyways., 87% of people putting those two groups together, just aren’t leaving without a equal sign or aren’t leaving at all.

So that’s huge. So the second thing, so the people 46%, again, that first group saying they want a dollar for dollar sign on, that again gets back to the area that’s problematic because like a lot of companies just straight up can’t afford it. So even if people were open to it, there’s some companies that couldn’t do it anyway, because maybe they can do a onesy twosy here and there

but like at scale it’s just not feasible. Well, it’s hard to justify too on a new company side. Like, you know, if just because you’ve earned it for this company, doesn’t mean that the expectations are the same at the new organization that you’re interviewing for. It’s just hard to say, here’s 25% of your salary upfront because that’s what you’re missing out on at another organization.

It’s just, it’s a big risk to take. And I think with that, we see companies that do utilize it but they utilize it also as a retention tool on their side. Like here’s a sign-on, but you got to stay for a year in order to make sure that you don’t have to pay it back. So it’s a double-edged sword. If you’re going to pay it out, like it’s great. You’re taking a risk but at the same time, it can be a retention tool for yourself to make sure that people aren’t just continuing to look outside of your organization every three to six months too.

Okay. So there were four things we want to kind of dig into here. And I want you to take the lead on this next one, especially since I don’t just keep talking over you the whole time, which I know I have a tendency to do, but go ahead. Kick us off here. I mean like this kind of what we talked about a little bit before,

end of year bonuses like they’re not always universally loved. People don’t always understand what to expect with them. There’s not always clear KPIs around what those are going to look like. A lot of things can change in a year. If you’re hitting your goals Q1 versus hitting your goals Q4, it’s not to say that the company itself is doing everything.

So when I talk to candidates, like there’s a lot of different pieces that I ask them about their bonus, like how it’s broken down, what they understand about it. A lot of times bonuses are broken down. Typically I think most commonly, I’d say 33% is company performance, 33% is team performance,

33% is individual performance. Now, if you’re in an organization where those are all very specific and you know exactly what you’re going to hit and what exactly you’re going to miss out on, great. You’re in the minority, but at least you know what you’re getting. But a lot of times like organizations don’t have that information until the end of the year.

So while you may think you’re going to get a hundred percent of a 20% bonus, once it hits in March, you’re actually at 11%. You’re like “Oh well that kind of sucks. I’m not actually- I could have left and gotten a little less money in terms of a sign-on and actually made up for it right away.” So I’m finding candidates

don’t always love them. Like obviously money is money. Like money’s going to talk, people love it. But at the end of the day, people can end up being very frustrated if a totally separate team from the organization misses the mark and it impacts their bonus. What I’m seeing to counteract that with certain organizations lately, are quarterly bonuses becoming a little bit more common. It’s not common practice necessarily yet, but it’s a way for organizations to reward their employees for the work that they’ve recently done, you know?

And it also helps to keep morale high. If you just delivered on a major project, it impacted Q1, you see the rewards, you’re rewarded for that right away. Cool like I’m going to keep that momentum up. I’m going to keep doing it. As opposed to having a great Q1, something falling off in Q2 and then that impacting an entire year’s worth of performance and a bigger chunk of that bonus is being affected.

Yeah. The more I talk to candidates, the more and realize that like well, bonus is important unless they have really clear distinction of what that looks like. It’s just so ambiguous. It’s hard to know what to ask for. It’s hard to know what they’re getting. It’s not the killer retention tool

that companies think it is, unless they’re more transparent about it, not to bury the lead- we’re going to come back to transparency in a minute, but yeah. A hundred percent. And like, there’s just- there’s just a lot to plays into it. And the other thing of it, and it’s more than just, it’s more than just cash.

Like it’s great that it is cash, don’t get me wrong, but like bonuses can be a lot of different things. It could be in addition to just the cash aspect of it, like there’s also people that are year over year are going to vest to LTI or 401k.

Well, that is the next thing we kind of want to get into in more depth, is that 401k, restricted stock options, equity grants, like all those types of things. There’s other huge levers that these companies have, which make it even more complex. I straight up do know some organizations that like they’ve asked what candidates are in the situation is because they want to make something kind of equitable.

That’s kind of another thing that comes into it. But you know, when you’re talking about- it’s another lever that like equity is the one that’s very ambiguous when you’re talking like startups or funded companies, right? So I’ve been in this industry long enough to see it ebbs and flows where the trend is like among candidates who are really interested in like in startup equity.

And then sometimes it’s not as- like right now, I feel like we’re in one of those cycles because there are so many companies getting funded, then they see companies going public. I’ve seen other times, the thing is between you and I, and I guess you and I, and everyone else listening this podcast- a lot of times equity hasn’t turned into anything.

You know what I mean? So it’s very much if you’re not a public company and you’re giving out kind of equity, you might be absolutely worthless someday. But that’s why the perception of what it’s worth among kind of job seekers has value whether or not it’s going to be something that’s effective in getting people over the hump. That being said, there are some companies, the high-flyers, the software firms, everyone who’s getting funded in Silicon valley,

like they are, we’re definitely in a cycle right now where they’re having a way easier time getting candidates to kind of join them because they can throw “a boatload of equity” at them, which other companies can’t do- whether or not there’s any real value to it. But that is something that also kind of plays a part in both attraction, but also getting people over the hump if they should bail on their end of year bonus.

And I’ve always been kind of fascinated by offering someone something that doesn’t have any value right now, but gets them to walk away from cash and it’s totally possible. Yeah and working with those smaller organizations that like that is the offer, it’s “Hey, stick with us for a couple of years, build this up and you know, we’re going to be valued at X, Y, and Z.”

It’s a hard pill to swallow if you’re not used to it. And I think a lot people, you know, as we’re seeing more nationwide roles open up that haven’t had that as like an option for them, it’s interesting to be able to walk them through because it’s betting on yourself and betting on the organization you’re joining in order to make that big payday down the road.

So it’s risk, reward situation. Like, do you want the 20 grand now or do you want a possibility of 65 grand once the IPO or once they get more investment and things like that. So, yeah. All right. Let’s talk about transparency and let you take a lead on this one too because I really think this is the underrated thing that makes or breaks a difference on how valuable both the sign-ons and your bonuses really are and if they’re effective or not.

Yeah and I kinda touched on it a little bit before, but for the most part, if you don’t really know what your bonus is going to look like at the end of the year, it’s too ambiguous. It’s up in the air and you can ask for something, you can not. Too many people at the end of the year don’t know what’s coming to them.

And that in it of itself is a problem and why people are looking. But because money is money, they’re going to- a lot of people will sit and wait and until they know what they’re going to get before they opened themselves up to look. So it’s kinda unique.

I mean, a lot of bonuses like I said, are tailored in a different way. But some are like strictly focused on like what your manager thinks you should get. They’re not measurable, they’re not specific and a lot of that is communicated ineffectively. People can get bonuses based on favoritism, based on what they’ve delivered versus not. I was at an organization in the past where bonuses

we’re very sporadic and they weren’t based on what you delivered but how much your manager liked you and it sucks. At the end of the day, whether or not you think people talk, like they do. I knew what my colleagues made in a bonus compared to my own and sometimes I was super happy about it and sometimes I was super upset.

So like that transparency, I think is important and like probably the biggest takeaway for clients and for companies to understand what’s going to be the motivator to either keep and retain talent or why people might be looking because they don’t understand what’s coming to them. That transparency is really huge.

It’s hard to keep it at a level playing field across the organization. I think every employee of an organization knows that not everything is going to be inherently equal. But if you have bands, if you have specific KPIs, if you have that, sit down with your manager and know exactly what you’re supposed to hit, like you should have a pretty general idea of what’s coming to you.

Similarly, if that communication and transparency isn’t being communicated around what the company’s doing from like a year to year perspective, that too plays into it. Like if that transparency and communication isn’t there, you’ll probably lose people just because they don’t know what to expect or they think it could be inherently deceiving them to keep them around.

Yeah. Which isn’t great either. Yeah, there’s actually, so there’s two real world examples we had of companies and candidates we’ve worked with recently. One was, and these are very kind of opposite examples. So one was, I know there was a woman who wasn’t really high on her job and knew there was a bonus coming.

And everyone was hesitant because it didn’t want to pass a bonus, but like the further along in the interview process, she was really impressed with the company she was like talking to. And then these exact things from years past, she wasn’t sure like there was no real merit. There was no real system around what the bonus was going to be. It wasn’t very transparent. It wasn’t very KPI based. It was kind of like how well your manager knew you. And the more she thought about it, she’s like, “You know what, F this. I don’t need this bonus. I might stay here for three more months, not get anything.”

Just kind of like you were saying. And so that’s an example of someone who had a bonus coming, probably, but decided F it, despite not getting a sign on the new company, just decided to walk. Second example, which is like the opposite, but actually a very positive one is we have a client that they get very high marks from everyone who interviews with them.

They pay very well. They’re very impressive. We have a very easy time placing people there because they’re just, they’re a great place. But part of what makes them great is one, they pay well, but also they’re very fair. Everyone at the same level gets the same salary. They don’t believe in favoritism or you know- everyone’s happy with the salary.

So no one’s feeling like, “Oh, I didn’t get to negotiate.” But they believe in internal equity and fairness. And part of that is they just, for that reason, they won’t do sign-on bonuses. They think it’s unfair for one person for another. I know we had a candidate who was walking away from like a 20K bonus or something like that, really hadn’t been hot on it, but was more impressed with how they answer that question to how they treat internal transparency and fairness, and was more like, “Okay, this is an organization I want to work for.”

I can’t be mad because the offer’s good. And while the, obviously everybody wants negotiating every last penny that justification and clarity around why they make decisions they do around comp across the organization was more impactful than actually getting the bonus compensated for. A hundred percent.

I mean that clarity, that transparency is really important and it’s an important recruiting tool. If, you know, for example, what those KPIs, what those metrics are going to be, if you know over the last five years you’ve paid out at 75%, 100%, 200% of your bonus year over year, and can relay that to candidates,

they know what to expect. They know what’s what they’re coming into as well. Obviously, that can change. We had 2020, which threw everything off, but if you’ve gotten, five out of the last six years of guaranteed a hundred percent bonuses, like if you’re coming from an organization with a lot of ambiguity like that in and of itself is an effective recruiting or retention tool for a lot of people coming in too. Let’s go to takeaways.

I think it’s been a positive conversation, which of course you and I always have. A couple things. One, if it’s fourth quarter I think you need to have, you need to have your eyes open. If you’re trying to hire that is. If you’re a company trying to hire, you need to figure out is doing any kind of sign on bonus something you can do and something you will do?

Because you’re going to have challenges with candidates who are going to either expect it no matter what or kind of in the one example you gave, maybe if you can explain clearly why it isn’t something you’re able to do, maybe something that they’ll consider. But this is a challenge you’re going to have one way or another.

So it’s just having what your game plan is kind of thought out is something you need to do. Secondly, I would say, I would discuss this- make this an open talking point with candidates. Make this sure it’s something that you actively address with them. So having your plan in place kind of the first thing, but secondly, when you’re discussing, it should always come up in that kind of first conversation, whether it’s your internal recruiter or whoever else. When you’re presenting, when you’re talking to the candidate, finding out not just what their comp expectations are, do they have a bonus?

Are they walking away from bonus? Because the last thing you want to do is have that be the last thing that comes up the very end of the process, because, you know how it is. It’s now December 15th. You don’t know how hard it’s going to be to get approvals if you need to or to have a game plan and

more so than I guess the last thing I would kind of throw into is just, again, to that last point, transparency. Make sure your internal bonus- if you want your end of year bonuses to be successful in retaining people, or if you want them to be a good tool for attracting new people, whether it’s end of year or sign on, having that level of transparency where people know exactly what they will and won’t get paid for is going to make them feel better about the entire process as either a retention tool and attraction tool. I mean to your point, every conversation I’m having at this stage with hiring managers, especially because of this market is, “Hey, we’re hitting- we’re getting out of Q4, beginning of Q1. People are typically getting paid out” like setting that expectation with them so that it’s not a surprise on their side too, I think is important.

I think the realization needs to be there on the client side, that people are going to possibly be walking away from stuff and the realization needs to be there on the candidate side, “Hey, I may put some of my bonus at risk. Is it going to be worth it? Or what do I need to see in order for something to make happen?”

So having the understanding of what’s possible for a company to do and knowing exactly what you actually need to make a move is important on the candidate side. It’s a two-fold problem. And I think there’s not always a ton of thought put into it until we get to the later stages.

And sometimes it’s great. Sometimes it’s an absolute train wreck in December, so. It’s usually a fire drill.

All right everyone, thanks for tuning into the talent insights podcast, part of the talent insight series, which is always available replay on talentinsights.hirewell.com as well as YouTube, Apple podcasts, Google podcasts, Spotify, Amazon. Everyone out there, thanks again for tuning in. Matt, pleasure as always. Have a great holiday!

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