Know what your signing bonus is for ...
and how it can work against you
One of the most alluring things for a new hire is the signing bonus - a cash bonus that you get within a month of taking your new job. Usually in your first or second paycheck.
This company-supplied cash infusion is a great ego booster, and tastes ever so sweet after the long hard slog of the job hunt. You're thinking, "To the victor go the spoils! Hoorah!!!"
But beware, those spoils come with strings attached.
From my own experience and that of many of my colleagues, I know that the signing bonus rarely get stashed away into your IRA, 401k or savings account. It usually goes to paying off student loans or credit card debt, which is not an altogether bad idea, but before you spend that tidy lump sum, understand what it really means
Look the gift horse in the mouth.
There are a few things the signing bonus does, not all of them immediately apparent. It's definitely a very appealing incentive to get you to join the company, lump sums of cash are rare in life. And it appears to be nothing more than the premium they're paying for your amazing talent and who wouldn't want to believe that? You probably are really talented, which is why you got the job, but the other side of the coin (pardon the pun) is that a signing bonus is how the company increases the likelihood that you'll stick around for 18 months to two years, even if it's the worst job in the world with the most dysfunctional culture imaginable. Here's why:
If you leave within 18 to 24 months, you have to pay back your signing bonus. Companies use this cash incentive to keep you in the job long enough to give them better employer turnover statistics, which they use as public relations angle in the business press.
One of the measures companies are evaluated on is how long the average employee stays with the company. When they are wooing you during the interview process, it's very hard to see what day-to-day life with an employer will be like. It takes a few months to discover what the company and culture are really like.
Companies want to show good retention numbers to attract top talent. Smart candidate looks at high turnover rates and know that a toxic or excessively demanding culture is the likely culprit, so companies want to keep their turnover numbers low. The signing bonus works to keep you from bolting if you find things aren't so rosy once they welcome you inside.
The possibility of leaving before your the payback term expires seems so remote in the lovely "honeymoon" period when your soon-to-be-employer has recognized your brilliance and wants to hire you. You can't imagine that wonderful boss you tried so hard to impress in the interview, being a petty, narcissistic, maniac who expects you to work 80 hours a week, effectively reducing your hourly salary to $.50.
That's why the signing bonus trap works.
By all means take the money, just don't get trapped by it. Know what it is and what it means for you.
Here's another thing to remember: the average person get's the bonus pays the taxes on it, which cuts the actual amount you receive by about 40%, but you have to pay it all back. Often companies do pro-rate the payback over time, lessening the amount based on the time with the company, but you could still pay back more than you pocketed.
Most people don't read the fine print on their signing bonus contract (you can see one here) until they are faced with repaying it. Before you accept a signing bonus, be aware and be defensive, read the contract carefully and negotiate your repay down to shorter time-period - if it's a year ask for 4 months, for example. You've got nothing to lose and everything to gain. Everything is negotiable. And don’t blow the bonus, you may need it to buy your freedom sooner than you think.
If you mis-manage it, your signing bonus becomes a pair of time-release handcuffs.
If, after some months, you find it's not a good fit and you decide to cut your losses and move on, you may have no or little savings, a mountain of student loan debt and your monthly discretionary income fund is probably not large. All of the sudden you realize you are miles away from being able to come up with the payback amount.
The psychological and financial impact of having to repay your signing bonus is very effective in keeping you in a job you may want to leave. Time is more valuable than money. You can make more money, you can't make more time. Don't waste yours sticking it out in job you don't want because they hooked you on the bonus.
I'd like to know what do you think? Please share your insights or tell me ...
- Have you ever accepted a signing bonus or had to pay one back?
- How would you spend a signing bonus if you got one?
- Share your thoughts about what you think are the up sides and downside of a signing bonus.
Courtney Kirschbaum,
Founder, Her Next Move
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