The average employee has never been more likely to peek over the other side of the proverbial fence and perceive the grass as being much greener. Hopping from one job to another habitually throughout one’s career used to set off alarm bells among recruiters and hiring managers, but the dynamic between worker and employer has shifted mightily in recent years. Simply put, young professionals nowadays are more keen than ever to see what else is out there.
Over 22% of U.S. workers over the age of 20 spent a year or less at one job in 2022, and 33% spent two years or less at their jobs. On a generational level, 6 in 10 millennials say they’re generally always open to new career opportunities, and an astounding 83% of Generation Z workers don’t shy away from labeling themselves job hoppers. As far as what motivates modern employees to explore other options, another survey from 2023 names higher pay, better benefits, and remote work options as the top three factors driving job hopping.
Doing away with the stigma long tied to changing jobs more than once or twice over the course of a successful career is no doubt a boon for employees and professionals of all kinds, but how do employers feel about this shift? Predictably, the meteoric rise of job hopping has left countless hiring managers rubbing their collective brow. No company wants to hire a new employee only to have them disappear within a matter of months.
Enter the retention bonus. This financial incentive, while not all that new to the world of business, is being utilized more and more by tons of organizations as a means of retaining essential or key workers.
What is a retention bonus?
A retention bonus, otherwise known as an employee retention bonus (ERB), is a financial reward or incentive offered to select employees in exchange for staying put in a given position for an agreed upon period of time. A retention bonus isn’t offered to just anyone. Employers reserve this tactic for workers deemed absolutely indispensable. For example, perhaps a company is going through a major merger or acquisition and feels a certain worker is essential to a smooth transition. Alternatively, an organization may be in the midst of attempting to reach an ambitious milestone, and decides a particular individual is key to reaching that goal.
On the other hand, a retention bonus may materialize for no other reason than it’s plain to see a star employee is garnering heavy interest from competitors. Many firms calculate the cost of paying out a retention bonus pales in comparison to losing that skill set entirely at that particular time – even if it’s just a temporary stopgap delaying their inevitable departure.
How much is a retention bonus?
Just as every employee is unique, so is each retention bonus. The specifics of a given ERB will vary considerably depending on the worker, company, and industry in question, but generally speaking ERBs typically range between 10-25% of a worker’s base annual compensation. Most of the time, retention bonuses are paid out on a single occasion, but some organizations may offer employees incremental payments.
By definition, workers are never required to reach any performance markers in order to receive an agreed upon ERB – it’s all about simply staying put. The exact period of time will again vary depending on the specific company’s needs. For example, if a startup needs their head developer to see through a major project penciled in to take another 6 months to complete, the ERB will be paid out after 8 months.
Additional considerations
A retention bonus is always put in writing as a contractual agreement, and usually features a few key sections:
- Financial Health: This area serves as a disclaimer of sorts that if the employer enters insolvency during the length of the agreement the bonus will not be paid out.
- Non-Disclosure Agreement: The employee must not disclose any sensitive information about the company for the entire duration of the ERB.
- Continued Employment Disclaimer: This section states the worker’s employment is not guaranteed after the agreement has run its course and the bonus has been issued.
Good for them, good for you
In many ways, an ERB represents a win-win scenario for employer and employee alike. Workers get the obvious benefit of a hefty financial bonus in exchange for simply staying around, and employers can take a breath knowing they’ve locked down a star employee. The temporary commitment afforded by a retention bonus allows both parties to better plan and prepare for the future.
Be a good boss to yourself
Is the Black Hole due to your resume?
What I read every day