Signing Bonuses Promote Trust, Raise Expectations

To close the deal with job candidates, employers are more likely to offer signing bonuses in boom times than during a recession. But the payoff in employee attitudes and effort was found to be considerably greater with a tepid economy—when candidates far outnumber open positions and the bonus is viewed as having real meaning—a new study suggests.

The study paper "Can Offering a Signing Bonus Motivate Effort?" (abstract here) was published in the March/April 2014 issue of The Accounting Review, a journal of the American Accounting Association, a nonprofit devoted to accounting education, research and practice.

Study author Jongwoon “Willie” Choi, assistant professor of business administration at the University of Pittsburgh, writes that "A signing bonus more positively affects worker effort when there is an excess supply of labor" (that is, during a weak economy) "than when there is an excess demand for labor" (a strong economy with robust hiring). And driving this outcome, the study finds, is that workers in a weak economy "attribute a signing-bonus offer to the employer's trust in them to a greater extent."

The study found that recipients of signing bonuses who were hired in times of surplus labor supply gave their employer a score of 85 for trust on a scale of 0 to 100, while those hired in a tight labor market bestowed a score of 53.

And on a scale of 1 to 10, a signing bonus brought forth an effort rating of 5.5 during times of worker surplus compared to 4.07 when workers were scarce.

Greater Expectations

Both findings are statistically significant, according to Choi, who adds a caveat: the initial effects of signing bonuses may not persist over time.

"When there is an excess supply of labor, employers who offer a signing bonus expect greater effort from their workers than they do when either no signing bonus is offered or when there is an excess demand for labor," he noted. "Workers receiving a signing bonus [when there is excess labor supply] are less likely to fulfill their employer’s greater effort expectations." And this failure, Choi writes, can compromise the employees’ employment over the long term, as "fulfilling employers' effort expectations [is] an important factor for retention."

Because "both employers' and workers' expectations may affect whether and how trust and reciprocity develop over time," there is a need to manage expectations so they remain reasonable and appropriate, building on the strong foundation of trust that the signing bonus initially creates and the corresponding higher levels of effort typically shown by bonus recipients.

The new paper is not the first to find signing bonuses correlated with strong subsequent job performance. One earlier study Choi cites saw signing bonuses as motivating talent development, while another linked their use to employers' ability to assess job-seekers' potential to be a good match for the company.

The new study, however, is the first to examine the role of trust and to probe how bonus recipients' sense of being trusted is affected by the broader market environment in which the bonuses are offered.

SHRM Members: Read or share comments Read or share comments on this
article here,
via SHRM Connect.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related SHRM Article:

• Amazon Offers 'Pay to Quit Bonuses to Disgruntled Workers, SHRM Online Compensation, April 2014
• Employers Award a Wider Variety of Incentive Pay, SHRM Online Compensation, March 2014

Quick Links:

• SHRM Online Compensation Topics & Strategy
• SHRM Salary Survey Directory
• SHRM Compensation Data Center
• SHRM Metro Economic Outlook reports