What is a retention bonus?
You’re a valuable employee with great performance reviews and good relationships with your colleagues. If you're in an industry where competitor companies are offering special perks and benefits to attract talent, it’s in your employer’s interest to encourage you to stay. One way is with a retention bonus – a financial incentive to keep you in your role, and part of what’s often referred to as ‘golden handcuffs’.
In this article, we cover what a retention bonus is, the benefits and drawbacks, and how to decide whether taking a retention bonus is the right step for you.
What is a retention bonus?
A retention bonus is money paid to you by your employer in exchange for working for an agreed-upon period of time. It’s a financial reward for staying at the company. A retention bonus is often between 10–25% of your salary, and is usually paid to you in a lump sum at the end of the agreed period, though sometimes this can be split into an instalment-type payout schedule. If you don’t complete the agreed period of work, you may have to pay back some or all of the bonus money.
Retention bonuses are more likely in larger companies and can be offered for a variety of reasons, such as to attract or retain employees with valuable skills that are in high demand in the industry, or during stressful or critical business periods.
Benefits of having a retention payment for employees
There are a range of reasons you might accept a retention payment. Let’s take a look at some of the benefits.
Financial security and recognition
If you’re offered a retention payment, you know your contributions to the company are recognised and valued. Not only is it a great feeling to have your effort and skills validated in this way, but it also offers a welcome financial boost. Additionally, if your company is incentivising you to stay, you can assume your job will be secure for at least another year. If you leave, you might not enjoy the same level of job security.
Incentive to stay and negotiate
A retention bonus can be a springboard for future negotiations regarding salary or benefits. Your employer sees your value and by offering you a retention payment they’ve shown they need you and are worth paying a bonus to keep. Much like getting an award or other form of workplace recognition, you can leverage your retention bonus, using it as evidence of your worth during conversations about compensation adjustments or negotiating other areas of your role, such as flexible hours.
Drawbacks of having retention payments for employees
There can also be some downsides to getting a retention payment. Here are a few drawbacks to consider.
Short vs long-term career goals
You’ve got to weigh up the opportunity cost of taking a retention bonus against exploring roles that align better with your ultimate goals. Does accepting a bonus and staying where you are mean you’ll miss out on other opportunities that could propel you towards your long-term career goals? The influx of cash is great in the short term, but if it means passing over more attractive jobs (or steps towards it) then it might not be the best decision long term. Consider your broader career picture and whether the bonus will support your future aspirations.
Feeling ‘bought’ rather than valued
While a cash bonus is always nice, it doesn’t always equate to feeling appreciated or fulfilled. A bonus is designed to recognise value, but could create a sense of feeling as if your loyalty can be ‘bought’ or that your relationship with your company is purely transactional. It’s important that employers communicate the bonus as an investment in your future with the company – genuine praise and appreciation along with the financial reward.
How to decide whether to accept a retention package?
If you’re not sure whether to take a retention bonus, it’s worth weighing up the benefits and drawbacks. Here are a few tips.
Evaluate the reason the company offered you a bonus
Properly consider why you’ve been offered the retention payment. Ask your employer the specific reasons they’re offering you a bonus to stay. Try to establish whether it’s to address an immediate need (like lack of resources) or if your employer is wanting to invest in you in the long term. Are they offering it to you because:
Are you a high performer that drives company success or have critical skills that are in high demand?
You’re considering another role and they want to keep you? If so, has the company addressed any underlying issues that might have caused you to look elsewhere?
You’re needed during a critical time in the organisation? You may find that the bonus is being offered just to keep you on during a specific business period such as the end of financial year. If so, assess your likely job security once the critical period is over and if you’d be wiser to explore other options sooner rather than later.
Your experience working in the company
Overall job satisfaction
Reflect on your overall satisfaction with your work environment, your colleagues, and the leadership you work under. Do you feel valued and appreciated in your current role? If the answer is no, then it’s unlikely a retention bonus will change the way you feel. Ask yourself if there’s room for growth and development within the company. Staying on for a bonus may be great financially, but are you missing the opportunity to develop your skills and earn a higher salary elsewhere?
Pros and cons of staying
Write down a list of the positive and negative aspects of your current job. Writing it down on paper makes it clearer to see how the pros and cons stack up against each other. This will help you weigh up your options and decide the best way forward for you.
Current job market
Research your market value
When deciding if the retention bonus is worth staying for, you need to know what your skills and experience are worth. Research what the average salary is for someone in your position, as well as benefits and other employee perks. This information will help you assess whether the retention bonus adequately compensates you for staying, compared to opportunities elsewhere.
Job search difficulty
You’ll also need to give thought to how difficult it will be to find another job in your field. Is there a shortage of applicants or high demand for people with your skill set, or is there a lot of competition for similar roles? The ease with which you’ll be able to land another job is a critical factor to consider. There may be more money on offer elsewhere, but if competition is high for those roles, then the security of staying with your current company combined with the retention payment may outweigh the benefits of leaving.
Evaluate your future career goals
When you think about your future career goals, how does this bonus fit in? Does it support your long-term aspirations or will the bonus hinder your career path by keeping you in a role that doesn’t match your goals? If the role doesn’t help your career progress in the right direction, consider whether your company offers other opportunities for skill development and career advancement. The bonus might be more attractive if it’s accompanied by a clear path for future growth within the company.
A retention bonus is an attractive financial incentive to keep you with your employer. It can be a great boost financially and a valuable tool when used strategically in negotiations about salary or work conditions. But whether it’s right for you takes some careful thought and thorough evaluation. Research what the job market has to offer, which decision best supports your career aspirations, your financial needs, and your overall happiness, to make the best decision for you.
FAQs
I just got offered a retention bonus. How do I know if it’s worth accepting the offer and staying with my current company?
Weigh up the pros and cons to decide if accepting a retention bonus is the right choice for you. The benefits are the financial boost, recognition, job security, and the potential to use the bonus in strategic negotiations for a better salary or more benefits. Consider whether staying for the bonus supports your long-term career goals, what other opportunities you’d be missing out on, and whether your employer is committed to investing in your future with the company.
The job market seems really competitive right now. Does that make the security of the retention bonus more appealing?
Yes, depending on your role, skill set and current market demand, having a secure job with a bonus can be appealing. It might give you stability at a time when finding another job seems more challenging than usual, allowing you to further your skills and get more experience until more opportunities are available.
In the long run, I’d like to move into a leadership role. Does the bonus offer any clues about the company’s plans for my career path?
Being offered a retention bonus could be an indication that your company recognises your value and sees you as an asset. But whether they’re interested in investing in you in the long term depends on their motivations for offering the bonus – check whether it’s just to cover a short-term need or if it’s because you are truly valued.
Should I prioritise career aspirations over the financial incentive?
Choosing between the financial boost and your career goals can be a tough decision and the ‘right’ choice depends on what matters most to you. If your career goals are more important than the bonus, you might choose opportunities that align better with your aspirations.
Is there any room to negotiate the terms of the retention bonus or other aspects of my employment?
Yes, you can often negotiate the terms of the bonus or other conditions and benefits of your job. It is always good to advocate for yourself in any job.
How can I politely ask my manager about the company’s reasons for offering the bonus?
Be direct but polite. You could say, 'I'm excited about the bonus offer and would love to understand more about the company’s long-term plans for me if I accept it.’
Is there a framework to help me weigh the pros and cons of the retention bonus offer alongside my overall career goals?
The simplest way to weigh the pros and cons is to write a list of how accepting the bonus could positively and negatively impact on your long-term goals. That way you can clearly visualise the reasons for and against accepting the retention bonus. Think about job security, career growth, and personal satisfaction, to make the best decision for you.
