Are Signing Bonuses a Sound Recruitment Strategy?

The public sector is facing employee shortages of 20% to 40%, and many government departments are struggling to fill vacancies. In North Carolina, correctional centers have a 20% vacancy rate. In Nebraska, almost 40% of health services jobs are vacant, and Arizona has a 20% vacancy rate for state troopers.

For public sector organizations, attracting candidates is a challenge as public sector salaries still lag behind the private sector. Some government agencies are trying to narrow the salary gap. Others are adopting a strategy more commonly seen in the private sector: offering signing bonuses to attract talented candidates.

What Are Signing Bonuses?

A signing bonus is a once-off lump sum payment offered to prospective employees as an incentive to join an organization. For organizations that have budget restrictions, paying a one-off bonus is more cost-effective than committing to higher monthly salaries.

Signing bonuses were, and still are, a common practice in the sports industry to attract top athletes. Soon corporations started offering signing bonuses. Now, public sector organizations are beginning to adopt signing bonuses as part of their recruitment strategy.

New Mexico is one of the states with big labor shortages in government. Corporate giants Amazon, Netflix and Intel all opened offices in the area, making it hard for local government to compete for talent at the same salary level. One way to lure potential employees is to sweeten the pot with a signing bonus. Some police and fire departments in Albuquerque are now offering sign-on bonuses.

How Do Signing Bonuses Work?

There are no hard-and-fast rules to signing bonuses. In most cases, it is an upfront lump sum payment, but some private sector corporations offer stock options.

Determining the value of the signing bonus depends on several factors, such as:

  • Experience of the candidate
  • Level of seniority
  • Your recruitment budget

The most common practice is to offer a percentage of the employee’s annual base salary. Let’s say the candidate is offered an annual base salary of $100,000 with a 10% sign-on bonus. They would receive a $10,000 bonus. Signing bonuses usually come with conditions. For example, in 2022, United Airlines offered a $10,000 signing bonus to attract new part-time employees. Bonuses are paid in monthly installments to retain employees for at least one year. If they leave before completing the year, they have to pay back the bonus.  

Do Signing Bonuses Succeed at Attracting New Talent?

Due to the Great Resignation, many employers with staff shortages are scrambling to fill vacancies. Offering a competitive signing bonus could give them an advantage over other employers.

However, while a signing bonus is a drawcard for some, others are not as easily swayed. Some candidates are looking for the “whole package.” They may take into account other factors like the benefits package, the organization’s culture, whether the organization’s values align with theirs, and opportunities for career growth.

To become an employer of choice, you need to be employee-centric and present a balanced offer—one that combines an attractive compensation package with a sought-after work environment.

Are Signing Bonuses Effective at Retaining Employees?

While signing bonuses can be an excellent way to attract talented employees, can they keep them?

The euphoria of a signing bonus is fleeting. Once it wears off, if the employee is dissatisfied with their job, their salary or the organization’s culture, they may simply coast along until the period they’re obligated to work for the organizations ends—in order to not lose the bonus—and then resign.

A signing bonus can attract employees but it doesn’t buy long-term loyalty. Nor does the value of the signing bonus guarantee longer employee tenure.

In 2017, Paysa conducted research into how signing bonuses impacted employee retention at several tech organizations. They found that Facebook’s average sign-on bonus was $45,708, and the average length of an employee’s stay was around 25 months. Microsoft offered a smaller signing bonus of $20,191, yet their employees stayed for longer—around 44 months on average.

Other signing bonus drawbacks include:

  • Employee resentment. If existing employees discover that a new employee received a big bonus, it can cause tension in the workplace.
  • Increased staff turnover. Existing employees who are not equally financially rewarded may feel under-compensated or unappreciated and decide to leave.
  • A poor return on investment. Paying a sign-on bonus could backfire if the employee’s standard of work and productivity level are not as high as expected.  

Key Takeaways

Signing bonuses can be a great incentive to attract talent, but it won’t be the reason they stay. Many employees are looking for more than just financial rewards.  Pubic sector organizations should consider focusing on creating an employee-centric HR strategy that offers fair compensation, prioritizes employee wellness and fosters a work culture individuals will be eager to commit to for the long term.

To overcome employee shortages, some public sector organizations are offering signing bonuses. But are signing bonuses a good way to attract and retain talent?
Are Signing Bonuses a Sound Recruitment Strategy?DOWNLOAD
Jeff Hoye

As Senior Practice Leader, Jeff is responsible for strategic planning, business development, product/service delivery and P&L responsibility. Jeff's expertise is in the areas of organizational strategy and development and large systems change, working with senior leadership teams, boards of directors and management utilizing various teaming structures and innovative strategies. He received his bachelor’s degree from the University of South Florida and his MBA from the University of Colorado.

About CPS HR Consulting

CPS HR Consulting is a self-supporting public agency providing a full range of integrated HR solutions to government and nonprofit clients across the country.  Our strategic approach to increasing the effectiveness of human resources results in improved organizational performance for our clients.  We have a deep expertise and unmatched perspective in guiding our clients in the areas of organizational strategy, recruitment and selection, classification and compensation, and training and development.