25 Sep Signing Bonus Agreements: All That Glitters Is Not Always Gold
If you’ve ever been courted by an employer, you may know what it’s like to enter a negotiation with some leverage. It’s a good feeling, but to really take advantage of this leverage, it’s important to know where and how to focus your negotiation efforts.
When it comes to job offers and compensation packages, not all aspects of a deal are created equally. We’ve written before about our Lifestyle Calculator, a tool that allows you to rank 24 unique attributes to evaluate what’s most important to you in a negotiation. But the truth about these 24 attributes is that while the importance of each entirely depends on the individual, some of them should rarely be ranked at the top of your list.
In this post, we’ll explain why signing bonus agreements fall into this category. Because while they may look great on the surface, all that glitters is not always gold when it comes to this negotiation item.
How Shiny Object Syndrome Relates to Signing Bonus Agreements
As entrepreneur.com defines it, Shiny Object Syndrome (SOS) is a “disease of distraction.” The term is often used in the startup world where founders and entrepreneurs are burdened by the endless distractions that come with the territory of running a company.
It goes without saying that you should aim to avoid Shiny Object Syndrome in any professional setting. Distraction is the antithesis of positive work attributes, like efficiency, logical reasoning, and thinking clearly.
This goes for your job offer negotiations, too. Any negotiation has dozens of moving parts, but the signing bonus agreement in particular claims more SOS victims than any other.
You heard that right. We’ve negotiated a lot of contracts at 10x Ascend, and the signing bonus is one of the most frequently used tools by employers to score top tier tech talent at a discount. Keep reading to learn why this is the case.
Weighing the Value of Job Offer Items
When it comes to any job offer, think of the package as a unique collection of value-adding items. Salary, vacation time, equity, benefits…all of these items contribute to the overall value of what is being offered. But as we hinted at above, not all items carry the same weight, and some actually might over or under compensate for others.
For example, a large salary might be reason for an employer to offer less equity. Conversely, in a similar vein, a lower salary might be met with the freedom to work remotely. This give and take between job offer items can exist in any number of instances.
So when it comes to your signing bonus, especially if it’s a big one, consider how the rest of your offer might be suffering. Where exactly might there be some undercompensation? Is your salary lower than it could be? Are you losing out on equity?
Of course, a nice big lump-sum hitting your bank account is an attractive offering. But do yourself a favor and consider that it may just be a shiny object distracting you from other aspects of the deal–in particular, aspects that might create much greater long-term value (more on this later).
Employer Motives in Job Offer Negotiations
Keep in mind that employers are inclined to conserve resources whenever possible. When vetting candidates for a position, employers look for a few things – among which is discounted value. Companies are always looking to hire those who deliver great work at a fair (or cheap) price.
This may be one reason an employer extends an offer with a signing bonus. Sometimes landing that top-choice, high-value candidate just requires a little extra cherry on top. And as previously mentioned, this could be a way for the employer to conserve resources in other areas of your offer, like salary for example.
This is not to say that employers approach negotiations with deceptive intentions. A signing bonus is a flattering offer, and it’s not always used as a way to undermine the rest of your offer.
But regardless of why they offered the signing bonus, we once again recommend that you consider the effect that the bonus may have on the rest of your offer. And as an informed negotiator, your focus should remain on longer-term value instead of short-term, quick wins.
Short Term vs. Long Term Value
As we’ve hinted at throughout this post, the reason signing bonus agreements are problematic is that they only create short-term value. With dozens of other factors at play in your negotiation, consider where you might score some longer lasting value.
A higher starting salary might be a better place to focus your negotiation efforts, in place of a bonus. To help illustrate, let’s look at a hypothetical case study.
You’ve been offered a compensation package that includes a base salary of $140k and a signing bonus of $15k. Instead of accepting the bonus, you ask that instead the employer starts your salary $12k higher. If they agree, you’ll forego the bonus.
It may look like you’re leaving $3k on the table. But with your base salary now at $152k, you’ve increased your earnings for every year of employment and set a higher floor for future raises. In other words, percentage-based raises will now play more to your favor, as you’ve increased the figure from which a percentage will be calculated.
If you were to earn a 10% annual raise, here’s how these two base salaries stack up over five years:
$140k > $154k > $169k > $186k > $205k
$152k > $167k > $184k > $202k > $223k
In year 1, you technically “lose out” on $3k, because with the signing bonus, your takeaway for the year would have been $155k ($140k+$15k). But in year two, you’re making $13k more, so your net gain is now $10k. Cumulatively, with annual 10% raises over 5 years, you’d make a combined $58k more by negotiating the higher starting salary and foregoing the signing bonus!
And the best part? As long as you continue earning raises, you’d be able to ride this out in perpetuity. That’s what we’re looking for when we talk about long-term value.
Along the same lines, another place to potentially score long-term value is through an annual bonus. Whereas a signing bonus is a one-time perk, an annual bonus pays dividends each year. Again, here we see it may be worthwhile to settle for a lower signing bonus amount if it means the acquisition of a recurring benefit.
When Signing Bonuses Make Sense
In an effort to empower readers of this post to be wise and informed negotiators, we’ve focused heavily on the reasons why signing bonuses aren’t all that great. But we’d be remiss if we didn’t point out that signing bonuses do have a time and place.
For example, the above section is geared towards those with medium-to-long-term plans of staying at a company. The truth is, a larger signing bonus might actually be a worthwhile perk if you only plan on staying for a year or potentially even two. We’re writing from the optimistic point of view that (hopefully) you’re being courted by a great company that you’ll want to be with for at least a couple years.
Another situation in which you may want to pursue a signing bonus is when you’ve already secured all you could possibly ask for in your offer. At this point, why not try to go for that extra cherry on top?
Closing Thoughts on Signing Bonus Agreements
No matter the case, earning the extension of a signing bonus offer is something of which to be proud. Most of the time, receiving this type of offer means you left an impression on a company. In order to make an extra push at landing you, they hope a signing bonus is the silver bullet that gets you to sign.
If you’re like most of the clients we represent, you might find yourself in this position more than once. Top-tier tech talent is (and should be) courted by employers more than just about any other cohort. They’re in short supply, and demand continues to increase.
But in order to fully embrace this modern reality, talented candidates and employees must be empowered to recognize where the real value lies in a job offer. Recognizing signing bonus agreements for what they are is a key step in this process.