5 Questions Everyone Has About Signing Bonuses — Answered

woman signing contract


Laura Berlinsky-Schine
Laura Berlinsky-Schine2.3k

When you’re considering an offer at a new employer, there are many things to take into account, from the responsibilities to the work culture. But one of the most important considerations will probably be compensation.

Compensation isn;t limited to salary. Along with your base salary, you should also be thinking about benefits and bonuses. One lesser-understood add-on is the signing bonus.

What is a signing bonus?

A signing bonus, as you can probably guess, is a bonus you receive when you agree to join an organization — that is, when you sign the contract. Typically paid as a single lump sum, a signing bonus can vary considerably in amount. Top executives, for example, might even receive six-figure bonuses, while lower-level employees will probably receive a few thousand dollars or less. 

There are a number of reasons why a company might offer a signing bonus to a prospective hire, and we’ll go into more detail on those reasons below. But ultimately, it is used to encourage people to join the company with the added incentive of an early, one-time bonus.

How do signing bonuses work?

A signing bonus is often paid as a one lump sum, although in some cases, it might be paid in several installments. Usually, an employer will offer it to you as part of salary negotiations to encourage you to join the company. You will generally receive it when you sign the contract or early on in your employment with the company. 

A signing bonus can also take alternative forms aside from cash itself. For instance, the business might offer you stock options, which, in some cases, could end up being very lucrative for the employee.

The employer will probably attach terms to the signing bonus. Read these terms very carefully. For example, they may stipulate that if you leave the organization before an agreed-upon amount of time, usually a year, you will need to pay the signing bonus back to the employer. They will also most likely reiterate that this is a one-time bonus and that you shouldn’t expect to receive it every subsequent year.

Bear in mind, too, that the employer will deduct taxes before depositing the signing bonus into your account. They are also considered taxable income, so you’ll have to declare it when you file your annual taxes.

When do you usually get paid a signing bonus?

The subject of a signing bonus could come up during salary negotiations or possibly even earlier, when the employer makes you the initial offer. Usually, the reasoning behind the salary bonus will dictate when the subject comes up. 

You should expect to receive your signing bonus after you accept the job offer or early on in your employment with the organization. It may also coincide with your first paycheck — the money could come in the form of a single payment. You may also have to work at the company for a certain amount of time before you’ll receive the signing bonus. 

In rarer cases, you might receive the money in installments over a period of time. This is more common with large signing bonuses. Read the terms of your contract carefully, because they will indicate the timing of the direct deposit or check. 

Of course, if you believe your signing bonus is overdue, you should check in with your human resources representative or accounting department to find out why.

Why might employers decide to give signing bonuses?

A signing bonus is meant to encourage employees to join the company. Specifically, it is usually used for the following reasons.

• In order to attract competitive candidates.

An employer wants to set itself apart from the competition. To appeal to talented candidates, they might offer a signing bonus as an incentive for the candidate to work for them. This is often the case for heavily recruited candidates, particularly management- or executive-level employees. It can also be the case for lower-level employees who are highly skilled.

They also might be used to attract underrepresented minorities in certain fields.

• In order to attract rare or specialized talent.

Similarly, an employer who is looking for exceptional or specialized talent might offer a signing bonus during negotiations because they have trouble filling certain positions. These industries include healthcare, cybersecurity, software development and several others. Because other organizations are competing for the same talent, this will make the offer more appealing.

• In order to compensate for a lower-than-expected salary or lost benefits.

If a prospective employee hoped for a higher salary, an employer might offer a signing bonus to compensate for the lost income. Or, if you had to forfeit certain benefits, such as PTO or additional bonuses,  by leaving your previous employer, this might be an offer as well. 

• In order to maintain salary equity within the company.

Perhaps an employer is unable to pay the candidate the salary they want or were expecting because doing so would mean that they would be paid more than peers with comparable positions. To maintain salary equity within the company, the employer might offer you a signing bonus.

• In order to help employees with relocation expenses.

Often an employer pays for relocation expenses if they’re expecting the new hire to move for the job. They might term this a signing bonus, rather than dictating that you use it specifically for moving purposes.

How can I negotiate my signing bonus?

Signing bonuses aren’t always in the employee’s best interest. You might, for instance, want to try to negotiate for a larger salary, which could ultimately amount to more money year over year. And when considering an offer, it’s almost always a good idea to negotiate. Here are some key steps to take.

1. Wait for the salary offer.

Before you attempt to negotiate any type of compensation package, wait for the employer to make an official offer. First, this is just best practice for the hiring process in general — you don’t want to broach the topic of money too early because it will leave a bad taste in the employer’s mouth, and you may end up not receiving an offer at all.

Second, it gives you a baseline. You’ll have a better understanding of what’s feasible and realistic. If, for instance, the offer is considerably lower than what you want or were expecting, no signing bonus is going to compensate for that. On the other hand, if it’s close to what you want and the employer is unwilling to increase the annual salary, then you might bring up the idea during negotiations.

2. Understand your value as an employee.

Before proposing a counteroffer, do some research into your value as an employee. You should be ready to explain what you can bring to the table and why you deserve the bonus. For example, you should look into the salaries of people with comparable positions at the company if you can. 

You should also find examples of previous signing bonuses if possible. It will help your research considerably if you know someone at the company who can help. Otherwise, do your best to gather evidence to prove your value, such as by looking at salaries at competitor companies on sites like Glassdoor.

3. Consider several alternative options.

While a higher salary is probably the prize, there are other types of bonuses you can ask for instead of a signing bonus. Instead of a lump sum, perhaps you’d like better benefits, such as asking the employer to cover a larger percentage of your health insurance or more paid time off (PTO). 

4. Be specific in your ask.

Whatever you do end up asking for, be specific. This will facilitate smoother negotiations. It’s usually best to aim for a number higher than what you expect or would settle for because then you’ll both have some wiggle room to reach a compromise.

This figure should be informed by evidence like the signing bonuses and salaries of current employees, your value as an employee and so on. It may also be the difference between the salary you wanted and the one you’re receiving — or somewhat higher, given that you’ll only receive the amount once.

5. Understand that this is a negotiation — but be clear on your own limits.

Recognize that this is a negotiation, so the employer will probably come back with a lower amount. You should be open to negotiating — that’s why you should start higher than you would like — and give the employer space to reach a compromise.

At the same time, don’t sell yourself short. If the compensation package, including the signing bonus, just isn’t satisfactory, you must be prepared to walk away. Remember your own value. If the employer isn’t recognizing it, then it probably won’t be a great place for you to work.