The Recruiting Tool Of Last Resort… Sign-On Bonuses (After you’ve tried everything)

During this “forever talent shortage,” after literally everything has failed, add sign-on bonuses to your recruiting mix.

It is the only recruiting solution with enough power (with the possible exception of a data-driven employee referral program) to dramatically improve your recruiting results. In my view, it’s time for smart corporate recruiting leaders to learn a valuable lesson from schools, the police, healthcare, and the military.

Even though each of these public sector groups has traditionally struggled to come even close to meeting their recruiting goals, private sector recruiting leaders should take note. More recently, a few advanced recruiters working at these public sector job groups have discovered recruiting’s “last resort” hiring tool.

Adding sign-on bonuses to high-priority jobs. Incidentally, I label it a “last resort” tool not because it is highly risky. But instead, it is the only tool left that could possibly have a quantum impact on your recruiting results. For example, one recruiting leader in a public sector group found that this lump sum bonus could, in a matter of months, cause a nearly 50% reduction in their recruiting shortfall

So if you are in a situation where everything you tried has fizzled, and you continue to struggle even to come close to meeting your recruiting goals. Explore this sign-on bonus tool further to make your job announcements stand out. It will also keep your applicants fully engaged. Finally, it will increase the number of finalists that accept your offer. So to me, now is an ideal time to explore in more detail the many benefits of “sign-on bonuses” (a.k.a. signing bonuses or hiring bonuses). 

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Act Quickly Before Sign-On Bonuses Become More Prominent 

Even though the use of sign-on bonuses is increasing every day, 2022 job board statistics reveal that only 5.2% of all job ads now include a sign-on bonus. So adding them quickly to your recruiting mix will still provide your corporation with a chance to make your job postings “stand out.”

However, it’s important to note that sign-on bonuses are already much more competitive in certain job areas. For example, nursing uses them three times more frequently (18.1%). And their usage is more than double the average in the driving, dental, veterinary, medical technician, physicians, and childcare job categories.

In addition to the current surge in usage in the private sector, the corporate use of signing bonuses has also been continually increasing. Leaders at recruiting powerhouses like Amazon and Google and other major corporations like AT&T, FedEx, United Airlines, Pepsi, and Wegmans have also recently re-learned the value of offering hefty sign-on bonuses.

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The Many Benefits Of Sign-On Bonuses

Sign-on bonuses are unique in that they have multiple advantages and only a handful of disadvantages. In the list below, the tool’s top five most powerful benefits appear first.

  • Initially, they will get you noticed – if you are one of the few organizations that offer these bonuses in a particular industry or location. And because potential applicants consider these bonuses key differentiators. Using them will make your company and its jobs “stand out” and appear special, even among a large number of talent competitors that have the same job opening. 
  • They will trigger more applications – because these bonuses may give an applicant a once-in-a-decade opportunity to get out of debt, pay for college, cover medical bills, or make a down payment on a house. This sudden cash infusion from a sign-on bonus has proven to trigger a prospect into formally applying. And because the employee gets their money right away, it is important to note that these bonuses are superior to stock options with an uncertain future value. 
  • They will reduce the number of candidates that drop out – the thought of getting an attractive sign-on bonus may, by itself, be enough to keep many candidates interested. Even when they may be currently suffering through a less-than-perfect candidate experience
  • They will improve offer acceptance – if the bonus amounts are high enough, they will often be a “deal closer” factor. This “deal sweetener” will likely increase your offer acceptance rate between 10% and 30%. And if the bonus is tied to a faster offer acceptance (i.e., exploding offers), these offers will be accepted much faster. Incidentally, in organizations that don’t offer to reimburse relocation expenses fully for the job. The sign-on bonus may increase your offer acceptance. The candidate can use it to partially offset their unreimbursed relocation expenses.
  • In some cases, they may be powerful enough to overcome negative employer brand factors – negative recruiting factors that often discourage applicants like weak name recognition, low Glassdoor.com ratings, a weak product, or a long commute. In some cases, it can be neutralized or even overcome by adding a significant signing bonus.

Additional important reasons for using sign-on bonuses

In addition to the top five benefits listed above. There are some additional, slightly less powerful reasons for using sign-on bonuses.

  • They may increase diversity – when diversity is your goal, diverse and low-income candidates may have an immediate need for cash. It makes sense to focus these bonuses on jobs where you need to recruit the highest number of diverse candidates. 
  • They work even when you don’t have great recruiters – in today’s world of reduced recruiting budgets. You may not have enough recruiters that excel in convincing top candidates to accept your offer. However, effective sign-on bonuses work independently. They will still be effective even when your recruiter or your hiring manager doesn’t have effective selling skills.
  • They produce results in almost every job – although sign-on bonuses will work for every job. They are likely to be needed the most in executive and technical positions. But it’s important to note that they have also been proven to work for both part-time and contract labor positions.
  • Even with the cash layout, these bonuses may be highly cost-effective – the bonus amount offered usually ranges between 10 % and 20% of the base salary for the job. It isn’t much of an investment if these bonuses increase your hiring results by twice that percentage. And although the initial costs may seem high because they are a one-time payout. In the long run, the total amount spent will be much less than if you had awarded the new hire a higher initial salary. Unfortunately, that higher initial salary would continue to cost you more each year they stay employed. Also, realize that by combining transparency with not awarding a new hire a noticeably higher base salary. You will avoid a great deal of disruptive salary concerns from your current team of employees
  • They may cause an increase in future applications – most new hires don’t talk a great deal about their salary. In contrast, many new hires frequently end up bragging to their friends about the fact that they earned a sign-on bonus. And that combination of face-to-face and online bragging may result in an increase in applications for your future job openings. 
  • You may end up hiring more top performers – because top and average performers are usually relatively equal in their interest in sign-on bonuses. The bonuses themselves won’t likely attract better-qualified applicants. However, these bonuses will definitely keep your top-performer candidate engaged in your hiring process for a much longer period of time. And a higher engagement level may result in higher-performing new hires.
  • In the future, these bonuses may no longer be optional for some jobs – because so many organizations are beginning to adopt sign-on bonuses. For some jobs (like AI developer), they are gradually becoming expected by every candidate. So in these cases, each talent competitor will primarily compete only on the dollar amount of the bonus. 

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Some Potential Problems To Consider

I find that many recruiting leaders are too quickly put off by the handful of potential problems associated with implementing a sign-on bonus program. Fortunately, in my experience, I have found that each of these problem areas has at least one effective solution.

So if you decide to use this tool, expect the first problem that you will face will be to internally find the budget you will need to fund the bonuses. And because recruiting budgets are now extremely tight. I have fortunately found that after hiring managers learn about their many benefits. Most managers are more than willing to fund the bonus amount for their own budget. The amount to be paid is the second biggest issue you will likely face. The key is, to begin with the premise that the amount will have to vary periodically depending on what your direct talent competitors are offering. 

Next, each new hire will eventually realize that they will have to pay the taxes on their bonus. However, a few organizations have eliminated this tax issue by prepaying the taxes on each bonus. And incidentally, it is a mistake to split the payout of the bonus because that would eliminate the possibility of the new hire making a major investment all at once.

Finally, you may worry about “early turnover.” Where the new hire “takes the money and runs.” Fortunately, this problem can be minimized by making the bonus a forgivable personal loan, automatically repaid after six months on the job. And if you’re concerned about longer-term retention. You can add an extra “stay on bonus” that will help to keep each new hire for the remainder of their first year.

If you only do one thing – proactively select a single high-volume hard-to-fill job where the hiring manager is willing to pay the sign-on bonuses. Then, after a few hires, check to see if the average number of applicants, the number of process dropouts, or the job acceptance rate for this job has improved over your historical averages. 

Final Thoughts

After you experiment with various ways to offer sign-on bonuses, ensuring that your final approach produces its maximum impact is important. I recommend you start assessing your results by surveying each new hire that received a sign-on bonus.

The best time to do that is during their onboarding session. And then, after many hires, the recruiting manager can use the survey data to determine how much the bonuses actually impacted the new-hire’s decisions to apply, stay engaged, and accept your offer. And with this data, the recruiting manager can decide what needs to be done in the future to improve the impacts of sign-on bonuses throughout the organization.

Author’s Note

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About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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