What Is a Sign-On Bonus? Definition and How To Negotiate
Updated March 15, 2023
When you're negotiating a job offer, an employer may offer you a sign-on bonus. This financial reward may encourage you to accept the job offer and help you start working in a more advantageous financial position. Understanding what this bonus is can help you negotiate it effectively and ensure you optimize your offer.
In this article, we take a look at sign-on bonuses and discuss why companies offer them, plus we explore which industries typically offer sign-on bonuses to new hires and review how to negotiate a bonus for yourself.
What is a sign-on bonus?
A sign-on bonus is a monetary reward that an employer offers to an employee when the employee begins a new job. A sign-on bonus may come in the form of a single payment, multiple payments over a specified period or stock options. Once the employer issues the negotiated payment for your sign-on bonus, they don't make any more bonus payments.
Because a sign-on bonus is a one-time amount, it doesn't affect your overall salary. During the interview process, it's important to understand whether a sign-on bonus makes financial sense for you in the long term or if it would be better for you to have a small sum for a sign-on bonus and then ask for an increase in your salary. If you plan on staying with the company for a while, asking for a lower sign-on bonus and negotiating for a higher salary may be a wiser financial decision.
Why do companies offer sign-on bonuses?
When you're accepting a job offer, it can be helpful to know why companies offer sign-on bonuses so you can know what to expect. Here are three possible reasons an employer may offer you a sign-on bonus:
To acquire your skills
An employer may be more likely to offer you a sign-on bonus if you have desirable skills. They may be willing to reward you with a financial sum if you have beneficial soft or hard skills.
For example, if you have an outgoing personality and great customer service skills, they may want to offer you a sign-on bonus so they can easily fill an open customer service representative position with a high-quality candidate.
An employer may also consider the hard skills you have. If you're applying for a software developer position, they may offer you a sign-on bonus if you have ample experience with a particular coding program. If many companies demand the skills you have, you may be more likely to get a sign-on bonus as an enticement to work for a hiring organization.
To compensate you for a lower salary
A sign-on bonus is a form of compensation for a new employee in addition to their established salary. Employers might need to maintain salary equity within the company, which might cause a lower salary than you requested. If an employer can't offer you the salary you want, they may offer you a sign-on bonus to make up for a lower-than-expected salary.
To make up for the benefits you'd have to forgo
If you're an expert in your industry, you may leave behind a potential bonus or other benefits when transitioning from one company to another. When this is the case, your prospective employer may offer you a sign-on bonus to make up for what you would be leaving behind.
Industries with sign-on bonuses
Some industries are more prone to offer starting bonuses because positions require in-demand skills and expertise. You might expect sign-on bonuses in these fields:
Information technology (IT)
How to negotiate a sign-on bonus
Negotiation is an important skill for every job candidate. You can negotiate a sign-on bonus just as you would for work conditions and salary. Here are some steps to follow when negotiating your sign-on bonus:
1. Understand your skill set and the value you can offer a company
Gain a thorough understanding of how valuable your skills are for the company. Make sure what you do is in demand and that your prospective employer is showing real interest in you.
2. Provide logical reasons for a higher sign-on bonus
While you can highlight your skills to show that you deserve a higher sign-on bonus, you may provide other logical reasons to justify a higher one-time payment. For example, you may explain that you have a long-distance daily commute for which the company doesn't provide gas mileage reimbursement.
You may also explain that you need minimal training, so you can save the company money in this sense. Still, you may also explain that you would benefit from a higher sign-on bonus because the hiring organization isn't offering you comprehensive health insurance coverage.
3. Understand the long-term effects of a sign-on bonus
Determine if the sign-on bonus makes financial sense in the long term. Let's say an employer offers you a substantial sum for a starting bonus. You might want to agree to it because of the initial reward, but you can carefully consider its effects first. Ensure your regular salary is suitable for your needs once your employer pays out the sign-on bonus in full.
4. Understand the amount for which you're willing to settle
Once you know your worth, understand the amount for which you're willing to settle. During the negotiation, don't go below this established figure. You may determine this figure by understanding your starting salary. If your starting salary isn't as high as you'd like it to be, you can use this point to negotiate a higher sign-on bonus.
5. Ensure you fully understand the terms
Understand what your employer expects of you before agreeing to a sign-on bonus. For example, you may have to work at the company for a certain number of months or deliver a certain number of final projects before you receive payment.
There might be certain parts in your job contract that you would prefer to discuss during the interview process before responding. Reading your job contract thoroughly and asking a lawyer to review and discuss the terms and conditions with you is important before you sign the contract.
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