What is a Retention Bonus

This is a kind of innovative strategy used by companies to retain its employees. Retention bonus is one of the tools to keep back your employees by paying a bonus so that it creates a motivation among employees. This strategy is generally used when the company is undergoing a critical business period. Retention bonus is becoming more and more common in today’s business because companies are going through more transitions, like mergers and acquisitions. They have to ensure that the employees cope up with the situation by giving them attractive incentives to stay through the period of transitions.

A retention bonus is not a remedy, according to a survey; non management employees generally receive 10 percent of their annual salaries as bonuses, while management and top level supervisors get 50 percent their annual salaries. Not all employees are given retention bonuses, they are chosen as per their contribution to the management and generation of revenue. A retention period can spread between six months to three years. It even happens to a particular project. For example an implementation of a project can take 18 months; hence the retention bonus will be paid after 20 months.

There are different retention bonus plans as per companies. Let us the main plans:

Current Profit Sharing Plan: this is a very basic plan, where in the company sets aside a predetermined amount usually between 2.5 to 7.5 percent of the payroll. But sometimes it can go as high as 15 percent on the base salary. These bonuses are always dependent on the on company’s profit.  Sometimes bonuses are given across the entire board. The purpose of this plan is encouraging the employees to understand how their work affects the company’s profits.

Gain Sharing: this type of bonus is more common in manufacturing companies. Gain sharing works better when the employees become responsible for the production quantity and quality. This plan reflects a viewpoint that the employees know their job best. Here the bonuses are paid on the statistical improvements in the production and quality.

Spot Bonus Awards: some companies reward the employees on the spot for achievements that deserve special recognition. Spot bonus awards are usually 50 percent up and are paid by the immediate supervisor.

Non Cash Bonus: this is always cheesy word. But a well designed non cash bonus plan can install pride and improve employee morale. It is always a celebration kind of thing where in the deserving employee is called in the front and awarded a trophy of appreciation and a certificate to support the same.

Sign on Bonus: this is now extended to nearly all levels of employees. An agreement is signed along with the agreed upon bonus. This usually happens when a new employee joins the organization. Medium and large sing on bonuses may be paid over a period up to a year to protect the company’s interest.

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