Retention bonus – what, why, and does it work? How?

Retention bonus – what, why, and does it work? How?

Another type of bonus commonly found in companies is the retention bonus. They are a desperate solution to retaining an employee no matter how. This article will discover what they exactly are, who offers them, to whom, and what benefits can they offer.

What is a retention bonus?

A retention bonus is a one-time payment outside of an employee’s regular salary to keep a key employee on the job during a crucial business cycle or production period. This may be the case with mergers or acquisitions, leading to periods of instability. It prevents workers from leaving their positions. In the past few years, it has become more common for companies to offer bonuses to keep employees.

Employers can also give these bonuses if they think an employee wants to leave for a competitor.

Usually, its value depends on the employee’s length of service with the company, the length of the retention period, and the possible impact if the employee resigns from the company. It can account for a percentage (usually from 10% to 20%) of the worker’s current salary . Or it can simply be a lump sum of money. They are paid after the unstable time to make sure the worker stays on the job until the job is done.

They are also called ERBs (employee retention bonuses), retention pay, retention packages, or a stay bonus.

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Who are retention bonuses offered to? 

Employees with the knowledge or special skills relevant to the company are eligible for retention bonuses. It can also happen that they are workers who have completed vital training for the operations. The main idea is for employers to not let professionals take their skills or know-how elsewhere. 

To put it another way, the employee should have been with the company for a long time to be eligible for a retention bonus.

48% of US employees in 2022 say a bonus would encourage them to stay in their job.

What companies are more likely to offer a retention bonus?

Companies with more advanced technology are more likely to offer retention bonuses because their knowledge of the company or industry is harder to find on the market.

Organisations that work on long-term projects are also willing to retain employees until those projects are finished.

Businesses going through mergers and acquisitions are also known for their retention bonuses. They use them to retain its fleet during periods of instability.

Retention bonuses are more common in large companies. In fact, 81% of companies with over 20,000 employees use retention bonuses.

Benefits for the company

Companies would rather give a retention bonus than a pay raise since the latter will cost them more in the long run. This benefits the company but may not be attractive enough for employees. On the cost-benefit analysis for employees, many variables need to be taken into account. This is the case of the cost of not developing your career or the cost of being unhappy at work.

On occasions, the employee cannot be convinced to stay, but it can delay its departure for some time. In this case, the bonus will help employers. It will make it easier for new hires to learn from more experienced workers.

It also reinforces the relationship between the organization and the employee. Retention bonuses make clear how valuable this individual is to the whole company. Feeling valued can boost their productivity.

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About Author

Èlia Adroher i Llorens

Content Writer. Èlia studied International Business Economics with a focus on digital marketing. She is also interested in learning about data analysis.