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Sign-On, Retention and Spot Bonuses Show Upswing

Organizations turning to variable cash compensation to reward employees

Bonus programs have picked up steam in the past two years, with the use of sign-on and retention bonuses hitting all-time highs and spot bonuses rebounding significantly after a recessionary downturn, according to WorldatWork's Survey of Bonus Programs and Practices 2014 report, released in June.

The report summarizes the results of a March 2014 survey of WorldatWork members, primarily corporate total rewards professionals in North America.

"The uptick in sign-on and retention bonus programs may indicate that the war for key talent could be heating up as the economy improves, leading to an increased focus on attracting and retaining key talent," said Rose M. Stanley, WorldatWork total rewards practice leader, to SHRM Online. "In addition, with continually small, incremental increases in merit budgets, spot bonuses may be a means to recognize talent for special excellence during the year."

Bonuses are used for different strategic aims. For instance, while employers are using sign-on and retention bonuses to attract and retain talent, “they are targeting spot bonuses as an additional means to recognize employees that are excelling when other forms of cash compensation have been restricted," Stanley noted.

Sign-On Bonuses

Sign-on bonus programs were used by 74 percent of respondents in 2014. The survey also revealed that among employers that offer sign-on bonuses:

Most positions within the organization were eligible. Clerical positions were the exception, however, with only about one quarter of organizations (28 percent) offering sign-on bonuses to this employee group.

Roughly two-thirds of organizations (66 percent) paid the sign-on bonus in one payment. The rest paid some money upfront and the remainder after a set period of time, most commonly one year.

Executive-level employees received the largest sign-on bonuses, with 26 percent of organizations paying between $10,000 and $24,999; 21 percent paying between $25,000 and $49,999; and 41 percent paying more than $50,000.

Supervisors, professionals, sales and IT employees most frequently received bonuses from $5,000 to $9,999, while technical and clerical employees received bonuses from $1,000 to $4,999.

More than one-third of middle-management employees received bonuses between $5,000 and $9,999, while another one-third received bonuses between $10,000 and $24,999.

Retention Bonuses

Retention bonus programs were used by 51 percent of respondents. Among other findings:

Most employee groups are eligible to receive retention bonuses; clerical employees were the least likely but still eligible at 49 percent of participating organizations.

70 percent of organizations based the decision to award a retention bonus on management discretion; the remaining 30 percent based decisions on formal eligibility criteria and guidelines.

A lump sum payment was the most common practice, used by roughly two-thirds of organizations depending on the employee group. Payments in regular intervals were up over all employee categories, while progressive timing was down across the board.

A flat dollar amount was the most common calculation method, in use at over one-third of participating organizations. Management discretion calculating the bonus as a percentage of base salary was common as well, in use by over a quarter of organizations.

Referral Bonuses

Referral bonuses also were common for most positions, but executives were usually eligible to a lesser degree—only 33 percent of organizations allowed executives to receive referral bonuses. Among other findings:

Nearly three-fourths of organizations (72 percent) pay the referral bonus in one payment. The rest split the referral bonus so that some is paid immediately and the remainder after a set period of time.

For employers that do not split the payment, 71 percent indicated a minimum employment period for the new hire of between 45 days to six months has to be met before the payment can be awarded.

The most common bonus for referring candidates in all position levels except for clerical was between $1,000 and $2,499.

For clerical positions, the most common referral bonuses were $500 to $999 (33 percent of respondents) and $1,000 to $2,499 (34 percent).

When a referral bonus program is in place, 13 percent of new hires, on average, came from referrals.

Spot Bonuses

Among organizations that award spot bonuses, they were most commonly given for special recognition (90 percent), "going above and beyond" (85 percent) and project completion (72 percent), the survey found. Among other findings:

Nearly all organizations report that employees below upper management were eligible for spot bonuses. Eligibility slipped for the top tiers though—69 percent said upper management was eligible and 47 percent said executives were eligible.

31 percent of respondents gave their middle managers a spot award greater than $5,000, while 27 percent awarded between $2,500 and $5,000.

For supervisors, professionals, sales and IT staff, a maximum award of $2,500 to $5,000 was usually in place for spot bonuses.

For executives and upper management, the maximum was most commonly above $5,000.

Technical and clerical employee groups typically received a $2,500 to $5,000 maximum payment.

As regards grossing up spot awards to cover tax liability, 14 percent or organizations always gross up the award while 39 percent do so on a case-by-case basis. And 47 percent never gross up the award.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.


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