The Hidden Strings: A Closer Look at Sign-On Bonuses

Sign-on bonuses are an extremely attractive incentive used by companies to attract and retain top talent. For in demand professionals, such as Product Managers, sign-on bonuses are commonly included in the total compensation package offered. For those offered a sign-on bonus as part of their job offer, these are several factors worth considering when beginning negotiations which may influence your decision to accept or reject that cash incentive. These factors include:

• Contractual Considerations,
• Career Implications, 
• Long-Term Impacts, and
• Financial Planning.

The idea of a huge Sign-On Bonuses is immensely exciting, a big lump sum hitting your account will always make you take a job offer more seriously. But are big Sign-On Bonuses hurting you and your career? 

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Many companies use attractive Sign-On Bonuses to attract the best talent and incentivise them to stay in a bid to meet their recruitment and retention goals. For high-demand professionals, such as Product Managers, a Sign-On Bonus can make a company’s offer stand out from the crowd. Furthermore, if an individual leaving one company is walking away from unvested equity, performance bonuses, or other benefits, a Sign-On Bonus may act as compensation for those lost returns. 

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As with any form of compensation, understanding the nuances surrounding that perk and what to consider in terms of both your contract and long-term career is an important step in negotiating a deal that’s right for you. 

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This article covers the details you need to know about Sign-On Bonuses to understand their implications, and if they’re right for you.

Similar to most forms of compensation offered to Product Managers, there are two contractual components which you should carefully assess prior to agreeing to any sign-on bonus:

• Repayment Clauses, and
• Contract Terms.

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Companies typically apply repayment clauses to sign-on bonuses as a retention strategy. They are designed to ensure that all new hires remain with the company for a predetermined amount of time, consequently protecting the company’s investment in you, the new employee. There are three common terms found within a repayment clause which you should assess:

• Time Bound - the most common type of repayment clause requires the employee to repay the sign-on bonus if they leave the company before a specified time period has elapsed, typically this is one to two years.
  
  
• Pro-Rated Repayment - some clauses are structured so that the repayment amount decreases over time, reflecting the time the employee has already served. For example, if an employee leaves after six months, they might have to repay 7% of the original sign-on bonus, if they left after one year that amount could drop to 50%, and so on.
  
  
• Full vs. Partial Repayment - depending on the agreement, an individual may be required to repay the full amount or a part of it if they left before the specified period.

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Alongside any repayment clauses, you should also read any contract terms related to your sign-on bonus carefully. Below is a list of some key aspects to consider:

• Payment Details - your contract should specify when the sign-on bonus with be paid out. Some companies pay the bonus with the first paycheck, while others may delay payment until the employee has been at the company for a certain period. It should also be clear whether the bonus is paid out before or after tax deductions. Sign-On bonuses are typically taxed as income and as such the tax can significantly reduce the net amount received.
  
  
• Conditions of Payment - occasionally, the payment of a sign-on bonus might be contingent upon meeting certain performance criteria.
  
  
• Circumstances Affecting Repayment - the contract should specify whether the repayment clause applies to both voluntary resignation and involuntary termination. In some cases, the terms might be more lenient if the company terminates the employment. Additionally, there may be exceptions where the repayment clause is waived, such as in the event of redundancy, a change in job role or terms of employment that are initiated by the employer, or other significant changes that affect employment.
  
  
• Dispute Resolution - the terms should also outline the process for handling disputes related to the sign-on bonus, including any repayment disagreements. This might involve internal review, mediation, or arbitration before legal action can be taken.

When receiving either a single, or multiple, job offers it’s hard to think that the move will be bad for your career. In-fact it may be the best decision of your life thus far! With that, there are two primary factors you should consider when negotiating your Sign-On Bonus:

• Employer Expectations, and
• Career Mobility.
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When signing the dotted line, you should recognise that accepting a Sign-On Bonus may create high expectations from your new employer, after all they’ve just given you a big lump sum before you’ve done any work for them. You should be prepared to demonstrate your value early and effectively in your new role and work with your line manager directly to set clear and measurable expectations. 

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The second factor to consider is your career mobility. Having learned about repayment clauses which may be laid out in the contract terms, you should understand that a required repayment can affect your job mobility. Take time to assess whether the sign-on bonus is worth the potential lock-in period. Evaluate your career development at the new company to decide if staying for the required period aligns with your career goals.

Aside from considering the initial implications accepting a sign-on bonus may have upon your career, there are other impacts worth considering:

• Company Perception - particularly if it’s well known among your new peers, you should reflect on how accepting a sign-on bonus might affect how you are perceived within the company. You may need to ensure that your role and contributions justify the initial financial incentive to maintain good standing and relations within the team.
  
  
• Negotiation of Future Salaries - be aware that a high initial sign-on bonus, while great at the time, may impact future salary negotiations within the company, as initial compensation packages can set benchmarks for raises and promotions.

Within your employment contract, it should be outlined whether your sign-on bonus is paid before or after tax. Understanding that sign-on bonuses are taxed at the marginal rate as supplemental income, which might be higher than your regular income tax rate is important when evaluating your net income from the original sign-on bonus. Consider consulting with a tax professional to plan for the potential tax implications. 

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Depending on the repayment clause, and other contract terms, some financial planning experts advise placing your sign-on bonus into a secure account and not utilising the fund until all terms of the contract have been met.

We’ve collected the answers to some of our frequently asked questions below. Hopefully this helps clarify more about our service but as always, feel free to reach out to us directly if your question isn’t covered below.
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• Do Product Managers get sign-on (aka signing) bonuses?
  
  The short answer is, it depends. While many Product Managers may be presented with a sign-on bonus, you should be aware that the amount and type of bonuses offered to Product Managers is highly variable depending on several factors including the job role, company type, company size, and industry norms.
  
  
  
• What is the average sign-on bonus for a Product Manager?
  
  The average sign-on bonus for Product Manager positions is dependent upon several key factors. Furthermore, it is entirely possible for Product Managers to negotiate higher or reduced sign-on bonuses in relation to their overall compensation package.
  
  
  
• What is the bonus structure for a Product Manager?
  
  There are two primary forms of bonuses available to Product Managers: performance based bonuses, and sign-on bonuses. Both are typically outlined within the employment contract and will be paired with several contract terms and clauses. To learn more about performance based bonuses, read our article:
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• Do companies use sign-on bonuses to hide bad work environments?
  
  This is a common myth circulated around speculative job seekers. While you should be aware that sign-on bonuses are utilised by companies to attract and most importantly, retain, talent it is uncommon to find that companies use sign-on bonuses as a mechanism to hide the reality of their position opening.

To conclude, sign-on bonuses can play an important role in any Product Managers total compensation package. They should however be met with caution and assessed in relation to your longer term goals and objectives. Through reading this article, you should feel confident in discussing the terms and conditions around any sign-on bonuses you are offered into the future. When aligned with you personal aspirations, sign-on bonuses can be a tremendous addition to your total compensation package and can improve the overall conditions of your employment.