Know What a Retention Bonus Is to Expertly Negotiate

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What Do Job Titles Signify?
A job title is a very helpful tool in the professional world. Your job title provides a concise encapsulation of your position as an employee. A job title, depending on the job, can actually express not only your level in the overall organization of your business but also the responsibilities that are required of you in that position.

What is a retention bonus?
A retention bonus, also known as a retention package, retention pay, or stay bonus, is a one-time lump sum a company or organization pays an employee as an incentive to remain with the company for a specified amount of time. The amount offered within a retention bonus package varies but is usually based on a percentage of the employee’s salary, their role within the company, and the time they will remain. Larger companies use retention bonuses to retain key employees and continue to benefit from their talent and experience. Organizations typically offer retention bonuses during a company transition to help maintain a solid working foundation within the company and ensure that leadership guides employees through the change.

Reasons companies offer retention bonuses
Companies may benefit from offering retention pay in the following ways:

• To establish reliability. Bonuses help keep reliable employees happy and loyal to the company for many years.
• To boost morale. Extra pay shows employees their work is valued and they feel motivated to perform well.
• To create loyal workers. Workers who are justly compensated for their time and expertise gain respect for the company and are invested in seeing it succeed.
• To provide consistency. An outsider, such as a customer, who consistently sees the same employees views the company as consistent and reliable.
• To reward performance. Although retention bonuses aren’t based on employee performance, employees who are fairly compensated have higher job satisfaction and are more likely to take pride in a job well done.
• To keep highly skilled workers. A bonus is an investment in experience. Experienced workers are often more confident, are more consistently productive, and have honed their skills throughout the years.

How does a retention bonus work?
Employee performance is usually not a determining factor in a retention bonus. Rather, a retention package is a monetary incentive offered to keep an employee and their talent at the company for an agreed amount of time. Both the employee and a supervisor or a qualified company representative sign the written terms of the agreement. The retention bonus contract states the amount of the bonus offered, a determined time period the employee agrees to remain with the company, and how the company will pay the funds. Typically, the bonus is paid in one large sum or spread out in smaller amounts throughout the duration of the contract.

How to decide if you should accept a retention bonus
If the company you work for has offered you a retention bonus, you are a valued employee and management has noted your hard work. Your contributions and both hard and soft skills are considered valuable assets and the organizational leadership determined that losing you as an employee would negatively affect the overall company productivity and profit. Carefully consider the following factors when determining whether to sign a retention agreement or begin negotiating.

1. The reasons a bonus is offered
Companies offer bonuses for different reasons. Consider the determining factors behind your offer. The company might offer a retention bonus to secure quality employees during a time of transition or to ensure continued success and keep talented employees from going to work for a competing organization. Evaluate your thoughts about the justifications behind the offer and consider whether you agree with the company’s motivating factors or if you find the tactic questionable. It is important to evaluate these factors in order to make the best decision and work with a company you trust.

2. Your opinion of the company and your experience
Review whether your own values and priorities still match those of the company you work with. Consider your experience with the organization so far and the leadership styles you’ve encountered. Positive company culture is important to job satisfaction.

3. The current job market within your industry
Research current job openings that match the qualifications and responsibilities you currently hold. You can begin by searching based on your specific job title. Determine the status of the job market and how easily you would find a position with pay and responsibilities comparable to your current position. Knowing your available options and whether your current salary is fair will inform your judgment in deciding if a retention bonus is right for you.

4. Your tax responsibility
Retention bonuses are considered taxable income. However, because they are supplemental wages, your tax responsibility may differ from that of your annual salary. Consider the tax rate when contemplating if you should accept a retention bonus. A tax professional can answer your questions regarding things like aggregate tax or percentage tax. It may be financially beneficial to request a raise over a bonus.

5. Your career path
The retention agreement will show the amount of time you will commit to the company. Think about how the decision to remain will impact your career path and ability to move up. If upward mobility is important to you, understand whether there are opportunities for you to do so within the company and how a role shift will affect your agreement.

Tips for salary negotiation
When deciding if a retention bonus will work for you, you may ask for more funds or negotiate for a shorter amount of time to commit to the company. Use the list below for help with your salary negotiations and to understand your stay bonus plan.

1. Request a copy of the contract to review.
You will want to review the terms and conditions of the agreement when you are clear-headed and relaxed. An office setting, with work obligations looming, may not be conducive to understanding the details. Ask to take home an unofficial copy. Although some companies may not allow it for privacy purposes, they may give you other options.

2. Pay close attention to the language used.
Retention bonuses are often large sums, and companies may use vague language within the contract. If there is a shift in management or another unforeseen event, you want to be sure that you and the promised incentive are protected from policy loopholes. Look for phrases such as, “actively employed” and “sole discretion.” Read the clauses carefully and ask that the contract includes specific details. Check that concrete language is used throughout and that the company clearly defines terms like “termination causes” and “conditions I cannot control.” You may also want to look at asking the company to agree to keep your role relevant during the specified retention period (or negotiate a severance package) should there be a restructuring.

3. Take your time.
Because you are potentially committing one or more years to working with a company, take your time to review the conditions and clauses. Communicate with the human resources manager or your supervisor and let them know when you will be ready to discuss the terms and conditions.

4. Consider declining.
Although monetary incentives are attractive, if you were already considering leaving the company because of a lack of culture fit or job insecurity, a quick lump sum may not be enough to satisfy you in the long term. Be sure to weigh your options carefully and be ready and able to commit to the role and job environment for the negotiated time period.

5. Request a meeting.
When you are ready, request a meeting to sit down and discuss the terms with a supervisor or individual authorized to make changes. Know what your conditions are and clearly express your needs politely.

6. Propose adjusting the time period.
You may wish to negotiate a shorter time frame, especially if there are few opportunities for advancement.

7. Contemplate asking for a raise instead.
Based on your tax rate, pay scale, and the actual amount of the offer, you may want to consider requesting a raise in salary instead. Consult with a tax professional, but it may not cost the company extra money and could decrease your income tax responsibility.

8. Be flexible and patient.
Most companies and managers are willing to make adjustments, but they may need time to consider your proposal and possibly to check with others to see if they are acceptable. Remain respectful and understanding and be aware of your options. A shorter retention period may not be workable, but perhaps they can offer extra vacation time. Negotiation is a process.

Being well-informed when discussing your agreement and stay bonus can help you feel more confident when deciding if you should accept a retention bonus. Do your research to know if remaining loyal to your current company is the right decision for your personal and professional life.