The FAQs of Retention Bonuses, Answered.

From the Great Resignation to ongoing labor shortages, it is not surprising that the topic of retention bonuses has recently gained more attention. From healthcare to education to aviation, organizations all over the world are implementing a variety of tactics, including offering retention bonuses, to overcome their most pressing talent challenges.

If you’re not overly familiar with the concept of a retention bonus, you will likely have a few questions. Fortunately, some of those questions have likely been answered below.

What Is a Retention Bonus?

Indeed defines a retention bonus as “a lump sum of money an organization pays to an employee to stay with the organization for a specific amount of time.” A retention bonus, which you may also hear referred to as retention pay or a retention package, is in addition to an employee’s regular salary and is not typically related to their performance at the organization.

Who Is Eligible for a Retention Bonus?

Who is eligible for a retention bonus depends entirely on the organization. However, Mercer notes, “Retention programs are expanding outside of the C-suite. In fact, when asked about retention bonus eligibility outside of senior management and the C-suite, 70% listed “other employees critical for integration” and 35% listed “other employees regardless of critical for integration.”

Why Offer a Retention Bonus?

As the name suggests, a retention bonus is a tactic organizations use to encourage employees to stay at the organization, therefore, reducing turnover. However, Cafa Corporate Finance points out that there are a few particular reasons why organizations would choose to do so, such as:

• Merger or Acquisition
• Restructuring
• Bankruptcy proceedings
• Completion of a large project or a critical production period
• Labor shortages
• Retention of high-value, high-importance employees

How Common Is a Retention Bonus?

In light of recent events, retention bonuses are becoming somewhat more common. In 2021, 57% of respondents of one study reported using retention bonuses, while 49% reported increasing the number of retention bonuses awarded. And it’s not just the number of people receiving retention bonuses that have increased, but the size of the bonuses, as 30% have reported increasing the amount awarded in retention bonuses in the past year.

Some industries that are currently offering retention bonuses include:

• Healthcare - Nurses in Ontario are currently offered a retention bonus of up to $5,000.
  
  
• Education - Teachers and school staff in North Carolina are currently offered a $3,000 retention bonus.
  
  
• Aviation - CommutAir pilots are currently offered $25,000-50,000 depending on their position.
  
  
• Financial Services - Some employees at Apollo, a private equity firm in the United States, are reportedly offered retention bonuses of $100,000 to $200,000.
  
  
• Military - Service members of the United States Army are offered a Selective Reenlistment Bonus (SRB) of $25,000 per year/reenlistment.
  
  
• Technology - Apple recently offered certain software engineers retention bonuses of $100,000 to $200,000.

How Much Is a Typical Retention Bonus?

A retention bonus is typically between 10 to 25% of an employee's base salary. However, it should be noted that only 28% of organizations have formally defined retention bonus criteria, rules, and guidelines. Otherwise, 72% of organizations’ retention bonuses are determined by management’s discretion, which means those amounts could fluctuate significantly.

Do Retention Bonuses Work?

There is no definitive answer as to whether or not retention bonuses will keep employees from leaving an organization. After all, there are countless factors at play, such as an employee’s professional goals or experience/relationship with their direct supervisor, that can influence their willingness to stay, regardless of the appeal of a retention bonus.

However, research has been and continues to be conducted to determine just how effective this tactic is. For example, Mercer recently revealed that “In companies where pay dissatisfaction is the number one turnover issue, companies are conducting a wholesale review of rewards structures (57%) and offering retention bonuses (30%). The results of such efforts remain unclear, however, as only 13% see a decrease in turnover rates when actions around pay are implemented.”

Conclusion: Retention Bonuses Are Only Part of the Solution

Retention bonuses are a tactic that has been used by companies for decades and will continue to be. Whether it is the right tactic for your organization though, will require thorough consideration, research, and planning. You should also always keep in mind that retention bonuses are only one piece of the retention puzzle. Everything from your leadership team to your company culture to your investment in employee professional development will influence retention and turnover and, therefore, should be equally considered.