Cashing in before you join: negotiating a signing bonus
In 2000, Jennell Jones, currently a managing director human resources at a commercial real estate firm New York, had a professional decision to make. When the pharmaceutical organization she worked for New Jersey was acquired by a larger firm, she could either move into a newly created role or accept a position with a financial services company that was recruiting her.
She decided to negotiate with the financial company and solidified a compensation package almost twice that of her previous job–including a signing bonus, which put her in another tax bracket.
Signing bonuses are cash compensation mostly used as a recruiting tool to attract mid-career and senior-level professionals or, for someone with several prospects, as part of the bidding process, says George Medellin III, president of Medellin and Associates, a Chicago-based recruitment and consulting firm. The amount is determined by the candidate’s experience, certification, advanced degrees, base salary, and geography. Generally, good candidates can negotiate signing bonuses of 15% to 30% or more of their base pay, excluding target and annual bonuses. Medellin advises employees to first take tax implications into account (see “Avoiding a Tax Hit”). And leaving a company before completing the agreed-upon probationary period can result in penalties, such as paying back a prorated portion.
Sharon Hall, partner at the Atlanta office of the global search firm Spencer Stuart, says sometimes requesting a signing bonus can be counterproductive. “If you are desperate for the job, if you have confirmed the company will be paying you more than they wanted, or if human resources has indicated that signing bonuses are counter to company culture, then it is safer just not to ask,” says Hall. In addition, if an employee requests a signing bonus after a company has offered what they deem a generous package, it could be considered poor taste.
Before You Ask:
1. Research the industry and know your worth. Check out the Society of Human Resource Management, the Bureau of Labor Statistics, and Salary.com, which provide information on average base pay and compensation according to industry, qualifications, experience, and location. In addition, make a detailed list of all benefits and their value, as well as all expenses you might incur changing jobs.
2. Ask around. Jones was coached by mentors on how to negotiate her deal. Hall recommends consulting your network for policies and trends.
3. Remember, it’s a negotiation. Jones didn’t take the first offer. “I told them I would like to see better, and they did. And it was more than I could imagine.”
AVOIDING A TAX HIT
If an employee with an M.B.A. has a base pay of $130,000, then a 20% signing bonus would be $26,000. This figure should be rounded up 30% (an additional $7,800) to a total of $33,800 to account for the taxes, which will be deducted from the payment. Otherwise the employee might be shocked to find that the check is only $18,200 after taxes.
What Signing Bonuses Cover:
* An annual bonus from your previous employer
* Forfeited vested stock options
* Moving costs
* Down payment on a new residence
* Real estate taxes
* Childcare costs or private school
* Transportation (car allowance)
* Income loss from trailing spouse
COPYRIGHT 2006 Earl G. Graves Publishing Co., Inc.
COPYRIGHT 2008 Gale, Cengage Learning