Which is Better – A Signing Bonus Or Higher Salary?

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With a tight labor market and workers finally having more bargaining power than they’ve had in decades, what’s better for employees to negotiate for — a higher base or a better signing bonus?

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The unanimous opinion seems to be that higher base pay is always preferable in the long run to a one-time signing bonus.

A signing bonus is a one-time lump sum of money offered to a prospective candidate at the time of the contract signing. It is usually offered as an added incentive to get that employee to sign on with the company. Typically, an employee will have to stay with their employer for at least a year, or they might risk having to pay it back.

Harvard Law School states that, according to Monster.com, there are usually three main reasons an employer will offer a signing bonus: to beat the competition, to make up the difference in a salary gap or to compensate you for foregone income.

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The more in demand you are, the more willing employers are to initiate a sign-on bonus. Additionally, if you ask for a salary that is within the upper limit of salaries currently offered, but the company wants you, they could try to make up the difference with a sign-on bonus. Also, if you would lose an expected bonus or other benefits by leaving your current job to start with a new employer, it is not uncommon to be compensated for these losses through a signing bonus.

While these benefits are great, they all share one glaring flaw in common — they are temporary. Once you sign on, your salary likely does not change.

Hiring site Glassdoor states that “from an employer perspective, bonuses are often preferable to raises because they are generally a self-limiting cost. A company can give out bonuses when it has a year of strong sales and halt that practice in a year in which sales drop.”

They also note that because certain benefits, like 401(k) matching dollars, are often tied directly to salary, increasing set compensation can cost companies in other ways.

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One of the biggest setbacks, Glassdoor highlights, in a bonus — be it a signing bonus or regular in-year bonus — is the loss of bargaining power for future job negotiations. Let’s suppose you are job hunting and one job offers $80,000 while another offers $70,000 with a $20,000 signing bonus. You might make $90,000 in that first year, but if you want to leave your position after let’s say 2 or 3 years, you are now negotiating with a base of $70,000 instead of $80,000. If your base was $80,000 to begin with, it might be easier to guarantee the $90,000 salary for years to come instead of a one-off sign-on bonus check.

So while signing bonuses might be beneficial in the short-term, overall it can set you back longer than you might want for a higher overall salary. That being said, if you are in an industry where employees change jobs often, say finance, signing bonuses can be a way to leverage your demand and try to squeeze the best deal out of employers while you’re there.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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