The Truth About Sign-On Bonuses

A sign-on bonus is the biggest misnomer in all of hiring. Why? Well, think about it. Are cash sign-on bonuses just given to sweeten the pot, just to get you to sign? They may have been at one time, but in today’s world, a sign-on bonus serves a different purpose. So, let’s explore the real reason behind sign-on bonuses today.

My name is Michael Pietrack, Pharmaceutical Recruiter and the host of The Pharmaverse Podcast. I've personally been involved with hundreds of offers, and I’ve come to the conclusion that a sign-on bonus should really be called an offset bonus. Here's why:

📗 Sign-on bonuses are used to offset financial forfeitures that aren’t covered by the other elements of an offer. For example:

🔺A candidate’s current base salary will be canceled out by the new base salary (often with a slight increase).

🔺The annual bonus for the role will likely cancel out, as the target percentage is typically the same.

🔺 The stock package a candidate has at their current company will be canceled out when they switch to a new company.

📗 But here's where things get tricky:

🔺 A person might be walking away from part of their annual bonus and transitioning into a prorated bonus with the new company. For instance, if the candidate's start date is exactly halfway through the year, they would lose half their bonus. In that case, the offset bonus would compensate for that lost portion.

🔺 Stock vesting is another common scenario. If the candidate has stock that is vesting in the next 12 months but won’t vest for at least 12 months at the new company, they’ll need an offset to make up for that loss.

You see now why I call it an offset bonus, not a sign-on bonus.

But what if there’s nothing to offset? For example, what if the candidate is between jobs and isn’t losing any bonus or vesting stock? In that case, there’s typically no offset bonus.

However, if the candidate accepts a new position with a base salary that’s lower than their previous salary, the company may add a small offset bonus to make up the difference.

So, in reality, a sign-on bonus is just an offset bonus, and you need to think of it that way when evaluating your next job offer.

If this information has been helpful, please subscribe to the channel, and reach out to the Kaye/Bassman recruiter in your niche for personalized advice.

Thanks for reading!