Company's have historically used financial tools to influence employee behavior. One tool probably not utilized to it's full potential is the retention bonus. The retention bonus is often used to ensure an employee stays with the organization during a critical period or project. The standard practice is for the company to pay out a defined bonus amount if the employee stays for a pre-determined period of time. For example, when a company knows that they are going to shut down a project/department but it would be too costly to lose certain critical employees before achieving specified results, they will often entice the employee to stick around by paying them a bonus in return for their commitment to stay a specified duration.
Companies paying retention bonuses typically have one variable they influence; the dollar value. The employee then has to make a calculated decision on if it is worth it to start looking for another job and possibly accepting a job if offered or delay the job search until a point where accepting a job would not interfere with completing the time commitment.
To give an example, suppose the company needs their employee, Bob, to stick around for six months to ensure knowledge is transfered to another department while his department is closing down. Bob, who earns $60,000/annually (or $5,000/month), is offered a retention bonus of $15,000 if he stays the full six months. Under this scenario, if Bob expects that he can get a job in under three months, then he would be wise to take the retention bonus and not worry about it. If he expects that finding a new job will take four months or longer, then he should begin looking immediately. If he senses the market is tight, but he is lucky to get an offer, then it might be wise to take the new job offer.
If the latter situation is the case, what can the company do to make the bonus a little more influential? Of course, they can make the bonus larger. A bonus of $30,000 or more may have greater influence on keeping Bob from beginning the interview process early on. There is another (often overlooked) solution that could also influence Bob. One outside-the-box idea would be for the company to ask for Bob's commitment to stay the duration and in return for his commitment (and agreement on the retention contract) pay him the bonus up front. The obvious downside is with the company paying out the money upfront, if Bob were to not honor the contract, it would require the company to claw back the money paid. The upside is the company would be introducing one more variable that they can control (timing of payout). The more you can control the situation, the better off the company is. In this case, the dollar amount may be the same, however the psychological impact of knowing one would have to return the money if the commitment is not upheld would create another barrier for him to begin looking.
Imagine, you have $15,000 burning a hole in your bank account. It would be very difficult to not spend any of it. Once Bob dips into the fund a few times, he will rationalize that it would be easier to honor his commitment to the retention contract he signed than to actively pursue other jobs. In this example, by paying the bonus early, the company could potentially save itself the headache of a critical employee walking out the door without having to raise the amount of the retention bonus. While it is an outside-the-box application of a traditional tool, it may be the win-win solution your company is looking for to retain critical employees.
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