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Why you should consider adding a sign-on bonus to your compensation toollit

Sign-on (or 'signing') bonuses aren't just for sports stars and corporate lawyers anymore; consulting firm Robert Half shares that the use of signing bonuse increased 454% over the past year. They are generally used strategically to bridge a gap between employer and employee - and can be particularly helpful in helping reduce barriers to entry for the workforce.

There's no doubt they are effective; organizations that operate in a tight labor market understand that this kind of compensation can be incredibly effective in yeilding great outcomes for both the employee and employer.

Here's the top reasons why you might want to add sign-on bonuses to your comp strategy:

  1. Your company wants a better/deeper applicant pool: Sign-on bonuses can be an effective way to attract top talent to your organization, particularly in competitive industries or for hard-to-fill positions. If you're looking to increase the quality and quantity of an applicant pool, consider adding a signon bonus to your comp structure. A study conducted by the Society for Human Resource Management found that 57% of surveyed employers used sign-on bonuses to recruit employees, and 76% of those employers found them to be an effective tool in atracting employees.

  2. You'd like to motivate employees: Sign-on bonuses can motivate employees to perform well and stay with the company for a longer period of time. A study published in the Journal of Applied Psychology found that sign-on bonuses had a positive impact on new employees' job satisfaction, organizational commitment, and performance.

  3. You want a cost-effective retention tool: Compared to other forms of compensation, such as stock options or higher salaries, sign-on bonuses can be a cost-effective way to compensate new hires. In some cases, Sign-on bonuses may be tax-deductible for the company, reducing the overall cost. Furthermore, the fact that a well-designed sign-on bonus can reduce employee churn reduces overall churn costs, which for many firms can be substantial. Firms can get a good handle on these costs with this tool:

The changes employers have faced over the past 24 months have been many; the only constant seems to be change. The compensation strategy of many firms needs to evolve to address the realites of modern employement and changes to their labor market.


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