(Updated 04/23)
When it comes to the decision to raise a candidate’s base salary or pack a punch with a sign-on bonus, companies have several factors to consider. What’s the best approach to compensation packages, particularly bonuses, when attracting top talent and for the longevity of your business?
Since COVID-19, most tech workers have leaned on a higher capacity to bargain and negotiate what’s important to them. With the majority of companies having trouble filling their open roles in 2023, even with mass lay-offs, it’s especially important for businesses to be in tune with the market and what’s expected from the types of candidates they are seeking. We worked on gathering more information from employers and employees to get to the bottom of the sign on bonus vs higher salary debate.
Why Should Employers Offer Sign-On Bonuses?
In general, there are two big reasons employers are motivated to offer sign on bonuses. Sign-on bonuses can be used as a tool to equate or sweeten the difference in a salary gap from a previous role, or to beat out the competition. Over the last several years, tech companies have used sign-on bonuses as an olive branch for opportunity-saturated candidates.
Like a cherry on top of a sundae, sign-on bonuses can be an enticing offer, but they are also temporary. For businesses, this means saving money while still attracting a talented individual, so no losers here! For example, if a company offers a $5,000 sign-on bonus to a top candidate, this one-time monetary perk is more budget friendly than paying that person a higher base salary throughout the year, then also having to raise that salary over time.
Leaning on bonuses as a tool of negotiation allows companies to be more liquid with their cashflow. Still, business should be aware of how an offer looks and feels in its entirety. We recommend that our clients view making an offer as a complete package with many potential value-added items, ranging from insurance coverage, paid time off, equity, and opportunity for remote work.
The Flip Side Of The Coin
While sign-on bonuses are becoming more common place in the US, many feel they are not the only avenue in charming workers. According to ZipRecruiter labor economist Julia Pollak, almost 20% of all jobs posted on their site in June of last year were offering a signing bonus, a sharp increase from only 2% of jobs explicitly offering a bonus in March of 2022. As this trend rose in popularity in 2022, the jury is out on whether this trend is holding its own in 2023. In some cases, we are still seeing a sign-on bonus be added as a way to compete with other existing offers, but its frequency has decreased with current market conditions.
However, when it comes to what candidates value the most, higher salaries nearly always beat out one-time bonuses. The reason for this is that higher salaries put employees in a better position for growth, and after working for a company for a year or so, they can negotiate a raise from a higher base point than an offer with a lower salary.
After a tough year, we understand that employers are inclined to conserve resources whenever possible and are doing their best to find capable employees that can get the job done at a fair price. Designing an approach to compensation based on your company’s budgeting and values will put you in a better position when that perfect candidate comes around. As they say, strike while the iron is hot.
Offers Are About Total Value
We see this moment in the market as an opportunity for our clients to think about the entirety of their offer package. If a higher salary is offered, does that lower an employee’s offer for equity in the company? In the same vein, if you’re unable to blow the budget for a base compensation range, can remote work or other desirable perks be offered in conjunction with that offer?
Put yourself in the shoes of someone looking for a new job; it’s likely that there are multiple reasons for seeking a new job in addition to making more money. When you break it down, job offers are really a “unique collection of value-adding items.”
Like any good cake recipe, it won’t rise properly without all of the right ingredients. Base compensation, healthcare benefits, commuter and office perks, and anything else related to selling the position are the ingredients of a killer offer. Along these lines, making it known that your offer includes merit-based or annual bonuses adds long-term value.
If you read between the lines, the implication is that higher salaries and recurring benefits better contribute to long-term loyalty and success over quick one-time gifts. At the end of the day, a prepared candidate will take in the offer from a birds-eye view, and weigh the short-term versus long-term value of different aspects of that offer.
Other Offer Aspects That Add Value To The Overall Picture:
-
- Equity: A big way to show you recognize someone’s worth and want to be seriously considered
- Hybrid working models or fully remote work: in early 2021, 53% of engineers and developers said they would take a pay cut to continue working from home, this is a big bargaining chip for companies with flexibility
- Flex in start date: Allowing a candidate time to transition or take a vacation before starting can go a long way in negotiating a start date
- Help with relocation or a budget for home office setup
- Onsite childcare or a solid parental leave policy
- A more desirable job title
- Provided trainings or professional development budgets
Final Thoughts
To embrace modern hiring and remote work solutions that came about from the pandemic, candidates and employers must focus their energy towards recognizing the real value in any given job offer. A key step in this process is seeing the pros and cons of sign-on bonuses for what they are, a strategic play to reel in experienced tech professionals. With talent in short supply, employers should consider all the ways to build the best offer they can.
Here at BWBacon Group, we know and live what you are experiencing as an employer or job seeker in Denver, Boulder, Dallas, San Francisco, New York City or any of the other cities we work in. We believe great recruiting starts and ends with understanding people.
If you have any questions about living, working or playing any of the areas we serve, please contact us. We are happy to help. Seize the day, every day, that’s what we say!