What Is a Retention Bonus?

DEFINITION

A retention bonus is a one-time payment given to an employee in exchange for their agreeing to stay with a company for a set period of time.

Definition and Example of a Retention Bonus

A retention bonus is a one-time payment given to an employee in exchange for their agreeing to stay with a company for a set period of time. When an employer is hiring to fill a position for which workers are in high demand, a retention bonus can be a way to incentivize job candidates to join a company and stay on board.

Employers also award retention bonuses to key employees during times of upheaval. For example, your employer may offer you a retention bonus during a restructuring if they require your talents and think you might be inclined to leave.

The use of retention bonuses is on the rise. A WorldatWork survey showed that 22% of employers were considering offering retention bonuses in 2021, up from 10% in 2016. The survey included over 950 U.S. employers of different sizes and in multiple industries.1 If you’re hoping to earn a bonus for agreeing to stay with your employer, the odds are in your favor.

How Retention Bonuses Work

Companies usually offer retention bonuses as a lump sum, but they may also choose to pay them in installments. The bonus is generally paid at the end of the term specified in the bonus agreement or slightly afterward.

Regardless of how the bonus is structured, you will likely receive a contract specifying the terms of the payment. If you decide to accept the bonus, you will be asked to sign the contract. You may also choose to negotiate terms and conditions, asking for more money, a different time period, or both.

Employers often calculate retention bonuses as a percentage of your annual salary. The average retention bonus is 10% to 15% of base pay, but amounts can vary widely. Companies may also choose to offer a flat amount, such as $2,000.2

The IRS considers bonuses “supplemental wages” and may tax them at a higher rate than regular income.3

Retention Bonuses vs. Sign-On Bonuses

Retention bonuses differ from sign-on bonuses in that they are offered to current employees as well as to new hires. Companies offer sign-on bonuses to persuade candidates to accept a position. Retention bonuses, on the other hand, are used to convince workers to stay at the organization for a specific period of time.

Both types of bonuses typically involve a signed agreement that states how long an employee must work for the company in order to earn the extra payment.

Some jobs offer both sign-on and retention bonuses. For example, a $5,000 sign-on bonus and a $15,000 retention bonus.

Guidelines for Earning the Bonus

If your company offers a retention bonus, you will need to adhere to its terms to qualify. These terms often include the following:

• Time Commitment: The agreement will specify how long you must stay to earn the bonus, such as one year or 18 months. You may receive the money upon completion of the term or a short time afterward.
• Non-disclosure Agreement (NDA): You may be required to keep the terms of the bonus agreement confidential. If you violate the NDA, you may lose your right to receive the payment.
• Signature: You will have to sign the contract to enter into the agreement with your employer. Pay close attention to the terms of the contract and keep a copy for your records.

Most importantly, you will need to do an excellent job in your role to qualify for a retention bonus.

It’s important to adhere to the guidelines for earning the bonus. If you leave your job before the terms of your contract are up, you obviously will not be eligible for the bonus.

How To Find Jobs That Offer Retention Bonuses

While more companies offer retention bonuses now than they did a few years ago, it’s still a less common form of compensation than other types of spot bonuses, such as sign-on and referral bonuses.1 Still, if you want to work for a company that will offer you cash rewards for your loyalty, there are ways to find these employers.

Target an Industry

Some industries are more likely to offer retention bonuses than others. For example, in May 2022, Bank of America offered retention bonuses to staff in the form of stock grants.4 Some government agencies offer retention bonuses to certain job categories that are hard to fill.5 And the military offers retention bonuses to many service members who reenlist in specific occupations.6

Use Keywords

If you're using job search sites as part of your strategy to find a new role, add keywords to help you find the rewards you want most, including bonuses. Search using terms such as “retention bonus” or “retention pay” to find listings that offer bonuses.

Earn a Promotion

Employers use retention bonuses to hold on to key staff. Often, these indispensable workers include executives, who are expensive to replace. 

Although it's not a quick path to riches, setting your sights on the executive level can help you earn more money over time. Top managers typically command high salaries, which can include retention bonuses.

Key Takeaways

• A retention bonus is a payment given to an employee in exchange for their agreeing to stay with their employer for a given period of time.
• Employers often award retention bonuses to key employees during restructuring, mergers, and other times of organizational change.
• Most employers require workers to sign a contract outlining the terms of the retention bonus; these contracts may include an NDA.
• To find jobs that offer bonuses, target employers and industries that offer these rewards, use keywords on job search sites, or set your sights on a promotion.