To Offer or Not to Offer: Pros and Cons of Sign-on Bonuses Post Covid

Last week my colleague, Taylor, talked about the rise in hiring incentives that we are seeing in 2021. As of April, the national unemployment rate was 6.1%, and the rate in Alabama as of April was 3.6%, almost half of the national average. With the unemployment rate so low, employers who are now able to ramp their businesses back up post-Covid are finding it impossible to hire. So as Taylor mentioned, many are turning to offer sign-on bonuses or opportunities to win a prize such as a car in order to entice individuals to apply. It sounds great in theory, but what are the pros and cons of sign-on incentives that organizations need to consider? 

Pros: 

1. Sign-on bonuses get people in the door and on the clock. It’s definitely an attention-getter. Who wouldn’t like a few extra dollars in their pocket just for accepting a job? Promoting positions with a sign-on bonus is a great way to increase your application pool and find hires that may be needed just to keep your business running.
2. It can help you win over the competition. In the current market, employers are all fighting over the same candidates. What can you offer that the competition can’t? A higher sign-on bonus may be the tipping factor in which position a candidate applies to and/or accepts.
3. It’s a one-time hit to your budget. Many employers are offering sign-on incentives right now because the market is so tight, and because they are trying to attract candidates away from an inflated unemployment payment. While offering a sign-on bonus may be putting a tight squeeze on many small businesses’ bank accounts, it’s a one-time hit to the financials. Once the hiring market shifts, which many predict will happen once states start eliminating the additional unemployment federal funds, employers will be able to cease the sign-on incentives and get their budgets back on track.

Cons: 

1. Collect and bail. If your sign-on incentive is payable immediately upon hire, there is nothing keeping a new hire from collecting the sign-on bonus and walking away. If you defer payment until an employment period has been met (i.e. payable after 60 days of employment) that may be a deterrent to candidates if they can get an immediate payout elsewhere.
2. Decreases employee morale. Offering sign-on incentives to new hires that weren’t available to current employees might not sit well with some. For example, you promote an employee to a shift supervisor and increase their hourly pay to $20/hour and then you hire an external candidate to fill a second shift supervisor position and pay them an hourly rate of $20/hour with a sign-on bonus of $500, how do you think that’s going to be viewed by the internal candidate you promoted?
3. Creates an unrealistic expectation for the future. While an employer offering a sign-on bonus views that as a one-time payment, many employees view it as a precursor of things to come. When review time comes around, they may expect an additional bonus or a pay increase equivalent to compensate them for the bonus they received the previous year. In other words, while the employer views the sign-on incentive as an “extra” many employees view it as part of a whole, including that amount when they calculate their annual salary.

While I’m not arguing for or against sign-on incentives, organizations need to evaluate the pros and cons when determining if it’s the right thing for the organization. While considering the option of offering sign-on incentives, organizations should also discuss how to incentivize current employees to help recruit talent. If your organization doesn’t currently offer referral bonuses, maybe that is an option to try first. The best candidates often come from current employees. 

Is offering a sign-on incentive the right choice for your organization?