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With the rise of job-hopping, companies have started to get creative on how to keep their most skilled employees working for them. One of the ways employers have started incentivizing employees to stick around is by offering retention bonuses. So what does it mean for you when you’re offered a retention bonus?
What is a retention bonus?
A retention bonus is money that incentivizes an employee to stay with a company for a certain amount of time. Some companies will use retention bonuses instead of salary increases because the cost to the, over time, can be less than providing a raise.
More money may seem like a win, but with a retention bonus, you really need to analyze the offer before accepting it.
Why companies offer retention bonuses
Typically retention bonuses are given to senior leaders and key talent, as they are difficult to recruit and time-consuming to train. If there is a restructuring or merger, companies may offer a retention bonus to ensure that you aren’t going to jump ship.
Sometimes a company offers a bonus when an employee has received a new degree or learned a new skill and they want to ensure the employee stays, or if the company is in a competitive market and there are a lot of offers coming around.
Read the fine print
Always read the terms of your retention agreement. It’s important that you understand everything that you’re being asked in exchange for the bonus.
Is the bonus paid at the start or end of the retention period? How long is the retention period? (And are you prepared to stay that long?) If you were to leave the company before the end of the retention period, how much of the bonus would you be expected to return?
Another detail to consider is taxes. Bonuses are typically taxed as income, so it’s important to consider whether the amount of money that you would be receiving after tax will be worth it if you were already looking to leave the company.
How to negotiate a retention bonus
If you’re interested in taking the bonus but it’s not enough or you have terms you’d like to address, you can and should negotiate.
You can ask for time to consider the offer, and then come back with your requests. You might negotiate for more money, a shorter retention period, a change in when the bonus is paid, or you might even request to forgo the retention bonus and request a pay raise instead.
Read more: Why I Quit My Job for *the* Job
Negotiating for more money
Thank you very much for your offer. It has certainly given me a lot to consider as I decide where to take my career. I would be happy to accept if we could increase the current offer by X.
Negotiating for a shorter retention period
Thank you very much for the generous bonus offer. I believe the amount is appropriate, though I would like to discuss the retention period. I would be more comfortable with an 18-month retention period instead of a 24-month period. Is this something you’d be willing to shift?
Negotiating for a pay raise instead
Thank you for the bonus offer. I want to be frank about my circumstances. I have been approached by recruiters at other companies and am considering offers. I would be happy to stay on with the company in exchange to a pay raise to X in lieu of the bonus offer.
If you’ve negotiated terms, be sure that your employer provides an updated offer letter before you sign anything.
To accept or decline?
It all depends on you. Is the offer enough to get you to stay? And if it isn’t, is your employer amicable to negotiation? If you’re already in a toxic work environment or ready to leave the company as soon as possible, money in your pocket might feel good now, but you may regret being trapped in an unhealthy work environment down the line. If it's time to leave, it's time to leave.