When hiring for your business, should you offer a sign-on bonus to close candidates?
During the low interest era, sign-on bonuses became commonplace. At its peak, Facebook/Meta gave $100k sign-on bonuses to new grad software engineers. $100k!
These days, the marketplace has shifted. Let’s explore more about sign-on bonuses and see what benchmarks from Pave’s dataset tell us about this practice.
What is a sign-on bonus?
A sign-on bonus is just what it sounds like: a one-time payment offered to a job candidate upon signing their employment contract. They’re typically lump-sum cash payments, but they can also be in the form of stock options.
Sign-on bonuses are used by employers to make the compensation package seem more attractive, especially for highly competitive roles or to win over candidates who may have other offers.
Pros and Cons of Sign-on Bonuses
Offering sign-on bonuses as part of your hiring process comes with pros and cons. Here are a few.
Advantages of offering sign-on bonuses:
One advantage is that sign-on bonuses can help companies close candidates faster with point-in-time payouts that don’t disrupt compa ratios. Employees get a monetary boost while still being well positioned within their salary band.
Disadvantages of offering sign-on bonuses:
One disadvantage to sign-on bonuses is that recruiters may begin to normalize this practice and use it as a crutch. This means that sign-on bonuses can quickly become expensive and difficult to forecast over time.
Another disadvantage is that, culturally speaking, employees who joined the organization without receiving a sign-on bonus can feel slighted once they inevitably learn about their colleagues who received bonuses.
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How common are sign-on bonuses today?
Let’s take a look at how common sign-on bonuses are by stage using job offer data benchmarks from Offer Insights, Pave’s partnership with Greenhouse. Here, we analyzed 50,000+ offers from Greenhouse’s customer base.
Our data science team looked at accepted Greenhouse offers to individual contributors (P1 to P6) and manager level (M3 to M6) employees over the last 18 months and calculated the percentage of companies that included a sign-on bonus in at least one offer. Results are broken out by company headcount.
Sign-on Bonus Trends by Company Size
The findings show that the later stage the company, the more common sign-on bonuses become. Only 33% of small companies with fewer than 100 employees offer sign-on bonuses, while 75% of large companies with 1001+ employees do.
Which job families receive sign-on bonuses?
While larger companies are more likely to offer sign-on bonuses to new hires, there is some additional nuance here. Many organizations are differentiating by job function when it comes to sign-on bonuses, as it’s common to use this practice as an incentive for more in-demand roles.
As we’ve shown before, ML/AI Engineers are at the top of the food chain when it comes to sign-on bonuses, followed by Software Engineers and Product roles.
What is a typical sign-on bonus amount?
If you decide to offer sign-on bonuses, how big should they be? Once again, it depends a lot on job function.
Looking again at Greenhouse offers over the past 18 months across 3,000+ customers, we can see the median (50th percentile) sign-on bonus amounts as a percentage of base salary, broken out by job function.
Again, and unsurprisingly, ML/AI Engineering leads the pack with the median sign-on bonus at 15% of base salary. The 90th percentile notably jumps to 31%—a sign of how competitive the hunt for AI/ML talent has become. For illustrative purposes, 31% of a $200k salary is a $62k sign-on bonus.
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