The Disadvantages of a Signing Bonus

Weigh your options when offered a signing bonus.

Weigh your options when offered a signing bonus.

When you get a new job, it's not uncommon to be offered a signing bonus. Getting both a new paycheck and a lump sum of cash can be a nice boost to your financial status, but there are some drawbacks to it as well. Keeping your options open by considering to trade a signing bonus for other benefits could make your new position more positive for you long into the future.

Attached Strings

Relatively few companies simply hand you a check on your first day just to thank you for coming to work. Most signing bonuses contain fine print that limits their value. One of the most common clauses is a pay-back provision that requires you to pay the company back its bonus if you leave before a certain date. In essence, your signing bonus becomes a set of golden handcuffs, forcing you to stay at the job for that period of time. Other signing bonuses can have a delayed payment schedule that means that you don't get your bonus until you've been on the job for a certain time.

Lower Compensation

In many cases, a signing bonus is a way to cancel out low compensation or limited benefits. For example, if you are worth $85,000, but the company can only pay you $70,000, they may offer a $10,000 to $20,000 signing bonus to make up for the shortfall. The problem with this is that after the first year, you don't get another signing bonus, and you're now stuck with a substantially lower annual salary.

Now What?

If you have the discipline to set a signing bonus aside as a one-time windfall that gives you some unexpected money, then accepting one may be in your best interest. However, if you instead use the signing bonus to meet your day-to-day expenses, you could be setting yourself up for financial trouble. Once the bonus is spent, you'll have to rely on your paycheck alone.

Creating Disloyal Employees

While this may be more of a problem for employers than employees that take advantage of signing bonuses, it's worthwhile to think about what a signing bonus means. In essence, you're being paid to switch jobs to the new employer. Once your obligation to stay to keep your bonus has been fulfilled, you really have no reason to stay if you can find another employer that will pay you a signing bonus to join her. This can be lucrative, but it also leaves you working for a string of employers that are focused on hiring people now rather than creating a compensation package that makes them stay for the long term. Working in these high-turnover workplaces can mean that your job is harder since you'll have to cover for other new and inexperienced hires.

 

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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