January 9, 2024

Do Bonuses Buy Loyalty?

Hosts:

Episode Highlights

Churn is Healthy

I
3:03

The "Haves" & "Have Nots" Of Sign On Bonuses

I
5:07

Do You Want All Your Churn At The Same Time?

I
6:46

Quarterly Bonuses > Yearly Bonuses

I
8:29

What Is Your Employee Value Proposition, Really?

I
9:27

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It’s January. Which means we’re in the lame duck period for year end bonuses. Earned but not yet paid.

With that comes complications. Some companies are bracing for post-bonus churn. Others are offering sign-on bonuses to jump the line and get the talent they need now.

And of course, some companies were beat up so bad in 2023 that bonuses went out the window. There’s the Haves and the Have-Nots.

Meanwhile, the real question: how effective is the yearly bonus model for retention anyway?
Jeff Smith and James Hornick kick off the new year with episode 80 of The 10 Minute Talent Rant, “Do Bonuses Buy Loyalty?”

Episode Transcript

The 10 Minute Talent Rant is live. I’m James Hornick joined by Jeff Smith and we are on the clock. The 10 Minute Talent Rant is our ongoing series where we break down things that are broken in the talent acquisition and hiring space. Maybe even pitch a solution or two. Before we dig in all of our content can be found at talentinsights.hirewell.com.

This week’s topic, episode 80, really getting up there, Jeff. I know. Do Bonuses Buy Loyalty? We’re going to dig right in. Yeah, this is also our first one of 2024. Still shaking the rust off. We kind of skipped a cycle there in December. Excited. Everyone needs a break. Yeah. Everyone needs a break.

You know, recharge is always a good thing. But, I think this topic is topical with the time of year we’re in right now. So we’re in lame duck bonus season. 2023 bonuses were earned by some, if you were lucky enough. Likely not paid out. There’s no set rule about this, but our experience like March and April at most companies is typically when year end bonuses from the previous year actually get paid.

This creates an interesting and, you know, frustrating time for hiring companies and recruiters trying to pull people from their jobs. You talk to a lot of people who are looking to bounce. They’re actually ready to go. They’re looking for something new, but they’re just not budging until they get that final bonus, which is another-

you can talk to them last November and they’re telling you next March. So it’s always kind of a three to six month kind of window. This is a feature, not a bug. No doubt. Maybe this will resonate with employers. We’re like, gosh, all these recruiters just ask me to buy out all these bonuses and we’re going to get the sign ons later.

But it is, it’s really frustrating. Look, the bottom line is bonuses exist to incentivize individuals and teams to perform. Bonus payout cycles by design are put there for that exact retention mechanism. So, you just said it, humans are risk averse. So, you know, they don’t want to walk away from that big check in the present, when that payout is in the not too distant future.

Like, there has to be some incentive for them to actually take that leap of faith. Yeah, by no means am I taking a dump on the idea of bonuses and incentivizing teams, but it’s really-

It’s the timing, the payouts, we’re really talking about yearly versus quarterly bonuses is really kind of the, really what today’s discussion is really about. Long term carrots to keep people involved versus short term.

Now, the traditional thinking is a yearly bonus with larger lump sums to get people holding on to their job for a longer period of time is better to keep people, frankly, stuck longer. But are they really? Is that really the case, is what we want to talk about here. Right, so if we kind of look at this, you know, take a step back a second, but we’re going to go through a few points that we think are relative to the conversation.

Firstly, turn it healthy. But some to like, moderate churn could be healthy. It is baked into a lot of really healthy business models. And if it’s not baked into your model, maybe you should think about that, as you do reviews, et cetera. There’s only so much upward mobility in an organization, unless you’re growing infinitely, which good for you. You know, not every breakup is bad is the TLDR there.

There might be some sales people are saying, well, wait, I’m a rainmaker. That’s the big exception, right? If you’re an IC and you consistently know how you’re going to earn your paycheck. And there really isn’t a carrot to move somewhere else. Like, again, big caveat. We get that. But even in those seats, there’s human interest in strategy, team leadership, et cetera, that can entice even the best I see in sales to kind of look at other stuff.

Thirdly, there’s a cost to finding new folks and retaining existing ones. And you have to find the right mix on that. Keeping marginal performers can be just as and arguably more costly than going to market, you know, and finding fresh blood. Either in house with your team or via an agency recruiter. Yeah. And there’s, I guess, on that note too, it’s also a timeout. Like time spent attracting and hiring, you want all that happening at once or do you want to space that out over a year?

Not to mention comparing that versus the time you spent managing people who don’t want to be there, might be marginal performers, you know, just going back to the point. Like, I want to-

I don’t want to make this whole conversation about churn, but I think that, like, people have a negative connotation about it. It’s really just, you know, it’s a necessity in a lot of cases, but anyway.

And it’s very tangential to some of the other stuff we’ve talked about, which is we want to find people who have, you know, no job hopping. It’s like, that’s not the reality of the situation anymore. I digress.

We also wanted, well, you talked about sign on bonuses and we wanted to talk a little bit about, like, there’s two differing perspectives here, right? And some people can relate to sign on bonuses. Some people are like, I kind of know this thing sign on bonuses exists, but it’s not in my world. Yeah. So, it kind of comes down to, we’re in a market of have and have nots for this particular piece of compensation.

So, you know, what are the 2 perspectives? So, yeah, I mean, there’s companies that can pay sign on bonuses for people to walk away from the yearly bonus. And then there’s those who can’t. You know, typically, it’s companies who-

Companies with cash are the ones who are able to do it. We see this a lot. The side note is the ones who don’t have cash are the ones who can least afford to lose people. And I think it means for those types of companies anyway, like planning on bonuses, like the golden handcuffs isn’t really in the cards for you anyway, which is why I think it’s something that, you know, this conversation is even more relevant to.

Then separately, there’s people who receive signon bonuses because they’re an executive or they’re in a really hard to find skill set. And there’s those who don’t. Life isn’t fair. We’re not all made the same. At least not where we’re in the careers yet. But there, it is kind of a weird kind of dichotomy where in down markets like this, you see the rich get richer, both in terms of like companies with money and individuals who are kind of highly paid into those executive roles.

Yeah. And weirdly, those people end up being more attractive. I’ve met multiple executives who are great executives, and they’ve taken advantage of market conditions where they make money just on some of these just singular transactions that, you know, most people can’t even fathom, right? Yearly salaries.

Anyways, I want to go back to churn for a second. Again, like you said, we’re not saying that, you know, churn is overtly negative. It’s just a fact of life, right? People are going to move jobs. Do you really want all your churn happening at the same time? Like, this is a key thing to think about. It seems very short sighted, at least to us, that if you’re using a bonus as a way to dangle the carrot, that you certainly run the risk of getting to this time and place every single year and everyone looking at the exact same time. You know, both from a recruitment perspective, but also a daily operational perspective.

It’s why we have conversations every time at this time of year where everyone’s, it’s like a chicken with heads cut off everywhere. It’s like, oh, my 3 key people resigned. And, you know, now I’ve got to pay y’all 75,000 to fix that problem fast. Yeah. If your strategy for retention is all about bonuses and golden handcuffs, like, does that really work long term?

Like, could it be, is it just unhealthy in the long run? Like arguably all you get is a bunch of people who want to be there to ride out their job to get a paycheck at the end of the year, which can just be super toxic to begin with, you know. You could, I don’t know, call me crazy, like pay quarterly bonuses and spend all your time fostering an environment where people actually want to show up every day.

Yeah. Spread that income out over four payments, like everyone, anyone who knows anything about budgeting knows that’s a positive. Yeah. Anyways, let’s do takeaways. I know we got a bunch for today, so. Yeah. So, first one, quarterly bonuses, you just said. Alleviate the one time churn. And again, like just focus on it from, you know, there’s a term perspective and a budgeting perspective. Smaller, more frequent bonuses spread, you know, across time, you know, can distribute that churn over the course of a year instead of it all happening at once. Right? You can then, expected, you can start to chart out when this stuff is going to happen.

It’s going to allow you to not just hire, across a longer time frame, but also on board and train across a longer time frame. So, it smooths out the employee experience. It smooths out transition times. You know, there’s just a lot of benefit to just not having that condensed pressure, in that short amount of time.

Yeah. Second point of takeaway, every company needs to know where they stand with retention. Levers, you got high base, you got high bonus, you got high equity. You got full remote and you got legitimately being an A+ environment where people actually want to work. And this isn’t just us talking.

This is what the market tells us. This is what candidates tell us. This is what the smart companies often tell us. They understand that like, these are kind of the five key things that you can have to kind of keep people around. You have to know, like, what is your value proposition? And you can’t just be like, we’re all great because everyone says that, like, there’s not a company out there that says, we’re not great.

Somebody ping in the comments if you’ve heard a company say, “Hey, we stink.” I would love to hear about it. So like every company out there collectively, we all say the same things, but the companies with the best retention take a no bullshit approach and actually know like which parts of these are our value proposition.

What are we going to hang our hats on to actually keep people around? Yeah. You mentioned that-

remote. Remote is such a hot topic. If you want to be an in office culture, totally reasonable. Just expect that there’s going to be churn because of that decision. It’s okay. Like, just bake it into your business model.

Lastly, we work-

work is always going to be about money, at the end of the day. It is number one on the totem pole at scale. But, you should strive to be a place where your employees stick around for more than that. But by all the things that you just mentioned. Like, if you have a large contingent of people who are only there because they have to get to some line to get a payout, that has to have some really toxic, toxic effects on your culture and just the effectiveness of the overall employee population.

So to answer the opening question of the episode, yes, bonuses buy loyalty, but not the right kind. I did get an argument that I was using the term loyalty incorrectly, because technically that would not actually be loyalty, but I digress. We’ll go with it. Fair enough. We are short on clock. That’s a wrap for this week.

Thanks for tuning in the 10 Minute Talent Rant, part of the talent insight series, which is always available for replay on talentinsights.hirewell.com as well as YouTube, Apple podcast, Google podcast, Spotify, and Amazon. Jeff, thanks again as always. Everyone out there, see you soon.

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