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Employers Rely on Incidental Bonuses Amid Tight Labor Market

Sign-on and retention bonuses become more common

A group of business people shaking hands in a meeting room.

Over the last year, employers stepped up their use of sign-on, referral, spot and retention bonuses to attract and keep employees during an especially tight labor market, new research shows.

Sometimes called incidental or supplemental bonuses, these discretionary or incident-based rewards differ from variable-pay programs, which typically pay incentive-driven bonuses annually or quarterly.

WorldatWork's 2021 Bonus Programs and Practices survey revealed that 38 percent of organizations surveyed in late August through early September use incidental bonuses and that use of these bonuses is increasing. A total of 957 responses were received from organizations of different sizes and across multiple industries.

Sign-On Bonuses

Cash bonuses given for accepting an employment offer are the most prevalent of the four types of incidental bonuses, the survey found. Specifically:

  • 79 percent or responding organizations reported using sign-on bonuses.
  • 52 percent of respondents increased the number of sign-on bonuses awarded in the past 12 months.

Over half of employers offer an additional sign-on bonus amount for critical roles that are hard to fill, with another 21 percent considering adopting this practice.

"In today's extremely competitive labor market, employers are being aggressive and creative in their use of incentives to attract talent," said Sue Holloway, director of compensation content at WorldatWork. "Many are paying greater referral and sign-on bonuses for hard-to-fill roles, and a few are offering higher referral bonuses for candidates from underrepresented groups to help improve diversity."

Retention Bonuses

Organizations showed increased interest in using cash awards tied to length of service or some other milestone, with 22 percent of organizations reporting they are considering using retention bonuses, more than double the rate in 2016 (10 percent).

Over the past year:

  • 57 percent of responding organizations reported using retention bonuses.
  • 49 percent have increased the number of retention bonuses awarded.
  • 30 percent have increased the amount awarded in the retention bonuses.

Only 28 percent of organizations have formally defined retention bonus criteria and rules or guidelines, with most (72 percent) reporting that retention awards are based on management discretion.

The 13 percent of organizations measuring the effectiveness of their retention bonus programs all use retention and turnover rates as their metric.

Referral Bonuses

Cash awards paid to a current employee for referring a successfully hired job applicant were offered by 75 percent of organizations, up from 65 percent in 2016, which was the biggest increase among all four bonus types.

Executives are typically not eligible for referral bonuses, and 51 percent of organizations exclude HR employees. About one-third of organizations offer a higher referral bonus for critical, hard-to-fill positions, with 13 percent considering adopting this practice.

While only 2 percent of organizations offer a higher referral bonus for candidates from underrepresented groups, 12 percent are considering adopting this new practice.

Spot Bonuses

Recognition awards for a specific achievement, delivered in cash spontaneously, or "on the spot," are used by 61 percent of organizations, and consideration of adding a spot bonuses program has increased for the past several years.

Of the 7 percent of organizations measuring program effectiveness, 81 percent are using employee perception and satisfaction as a metric and 74 percent are measuring performance improvements.

Difficulty Hiring and Keeping Workers Expected to Continue in 2022

Most North American companies expect that their current struggles to hire and keep workers will linger into 2022, a survey of 380 employers by consultancy Willis Towers Watson found.

The August survey found that nearly 3 in 4 employers (73 percent) are having difficulty attracting employees—nearly three times the number (26 percent) that reported difficulty last year. Roughly the same percentage of employers (70 percent) expect the difficulty to persist in 2022.

"Employers are in the middle of an intense war for talent that's not likely to let up anytime soon," said Adrienne Altman, managing director and North American head of rewards at Willis Towers Watson. "The challenge of hiring and keeping employees has now spread from isolated industries and skill sets to most industries and workforce segments. To compete, it's imperative for employers to take strategic actions and find ways to differentiate the value proposition they offer to current and prospective workers."

In response to the labor shortage, employers are boosting salary budgets; increasing workplace flexibility; placing a greater focus on diversity, equity and inclusion; and enhancing the employee experience, Altman said.

Another Look at Sign-On Bonuses

Another perspective on the increased use of hiring bonuses is provided in a December 2021 report, How Employers Combat Labor Shortages: Insights from Online Job Ads Data.

The report is a collaboration between The Conference Board, a large business research and membership organization, and Emsi Burning Glass, which collects and analyzes postings from close to 40,000 online job boards, newspapers and employer sites daily.

"The share of job postings mentioning a starting or sign-on bonus more than doubled between the start of the pandemic and October 2021," according to the report. "The increases have mainly been concentrated in occupations that do not require a college degree."

Starting Bonuses for Noncollege Occupations Increase Sharply

CB-hiring bonuses-rev.jpg

Note: Shaded area indicates recession.

Sources: Emsi Burning Glass, The Conference Board.

Employers in 2021 also were more likely than before to include salary information in online job ads. Overall, more than 1 in 8 online job ads now include salary data, with blue-collar jobs again leading the trend.

"The shift began before the pandemic as the labor market tightened but accelerated during 2021," the report stated. "The percentage of job postings that include salary information increased across all occupations, but most visibly in noncollege occupations."


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