Sign-on bonus: Overview, definition, and example
What is a sign-on bonus?
A sign-on bonus is a one-time payment offered to a new employee or contractor as an incentive for joining a company. This bonus is typically provided to attract top talent, compensate for lost earnings from a previous job, or encourage commitment to the employer. Sign-on bonuses may be paid upfront, in installments, or after a specific period of employment.
For example, a tech company hiring a senior software engineer may offer a $20,000 sign-on bonus to persuade them to accept the job offer.
Why is a sign-on bonus important?
A sign-on bonus is important because it helps employers attract skilled professionals in competitive job markets. It can compensate candidates for relocation expenses, stock options forfeited from a previous employer, or other financial considerations that influence their decision to accept a job offer.
For employees, a sign-on bonus provides immediate financial benefits, but it often comes with conditions, such as a repayment obligation if the employee leaves within a certain timeframe. Companies use these conditions to protect their investment and ensure employee retention.
Understanding a sign-on bonus through an example
Imagine a hospital recruiting a specialized surgeon. To secure the hire, the hospital offers a $50,000 sign-on bonus, payable in two installments:
- $25,000 upon signing the contract
- $25,000 after one year of employment
The contract also includes a repayment clause stating that if the surgeon leaves within two years, they must repay the full bonus amount. This ensures that the sign-on bonus serves as a long-term incentive rather than just a short-term financial gain.
Similarly, a sales executive hired by a multinational corporation may receive a $10,000 sign-on bonus to offset the loss of an annual bonus from their previous employer. The contract specifies that they must remain with the company for at least 12 months to keep the full bonus.
An example of a sign-on bonus clause
Here’s how a sign-on bonus clause might appear in an employment contract:
"The Employee shall receive a one-time sign-on bonus of [$X], payable within [X] days of the employment start date. If the Employee voluntarily resigns or is terminated for cause within [X] months of employment, the Employee agrees to repay the full sign-on bonus amount within [Y] days of termination."
Conclusion
A sign-on bonus is a financial incentive offered to new hires to attract and retain top talent. While it provides immediate benefits to employees, it often includes conditions requiring repayment if the employee leaves too soon.
By including clear sign-on bonus clauses in employment contracts, companies can secure key hires, set retention expectations, and protect their investment in recruiting top talent.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.