Offering your staff a good retention bonus could be the key to keeping them on board for a long time, especially with your top performers. Retention bonuses give your employees something to work towards and it helps keep their satisfaction high.
What we'll cover:
What are Employee Retention Bonuses?
When should you consider giving Employee Retention Bonuses?
Why offer Employee Retention bonuses?
Why are ERBs beneficial?
Are there any downsides to offering retention bonuses?
Factors you need to consider when offering retention bonuses.
Alternatives to a Retention Bonus
How to improve long-term retention
For anyone seeking the help of a professional HR consultant, contact us today at HR Coach.
What are Employee Retention Bonuses?
A retention bonus is a payment made to your employees over and above their standard salary. It's usually a significant amount like double their salary or a lower percentage of their salary; the figures may vary depending on the company.
In essence, retention bonuses are like a big thank you to staff for remaining loyal to the company and sticking with them for a certain period. A good example of a company that does this is Mercedes Benz. When their staff reaches 30 years or 35 years with them, they receive a retention bonus as a thank you for their faithful service. This isn't always the case, but Merc has done it in the past.
When should you consider giving Employee Retention Bonuses?
The goal of implementing retention bonuses is to reduce disruption in your workforce and encourage employees to stay with your company. Providing retention bonuses is a great way of giving your employees a financial incentive to stay at your company and work towards that bonus.
Why offer Employee Retention bonuses?
There are multiple reasons why implementing an employee retention bonus is a beneficial idea. Firstly, offering a retention bonus allows you to keep staff with valuable skill sets for longer. Companies will generally offer good retention bonuses to employees who they would be at a loss for if they had to leave.
Having better retention bonuses also helps cultivate company knowledge. With senior employees around, you have access to people who know their jobs inside and out to help teach your newer employees.
Finally, offering your staff a good retention bonus shows them that you appreciate the time, sweat and tears they've poured into your business over the years.
Why are Employee Retention bonuses beneficial?
Businesses can benefit from retention bonuses in a number of ways. Here are some benefits of offering a retention bonus for your employees:
They help in saving costs associated with hiring and training new employees, making it more economical to retain existing staff.
The presence of experienced employees ensures stability in operations, customer relationships, and team dynamics, which is essential for the smooth functioning of the business.
Offering these bonuses makes employees feel valued and rewarded, enhancing morale and promoting a more productive work environment.
Companies that reward loyalty are more likely to attract individuals seeking a stable and rewarding work environment.
During periods of change or uncertainty, retention bonuses can motivate crucial staff to remain with the company, maintaining essential knowledge and skills.
Recognition through bonuses often leads to higher levels of engagement and motivation among employees, benefiting company performance.
Keeping seasoned employees aids in effective succession planning, allowing time for knowledge and skill transfer.
Companies with a stable workforce have an edge in expertise, customer relationships, and operational efficiency.
By decreasing staff turnover, retention bonuses reduce the frequency and resources needed for recruitment processes.
Are there any downsides to offering retention bonuses?
When it comes to the drawbacks of offering a retention bonus, we need to consider how it affects the business and the employee. Here are some drawbacks to using a retention bonus in your business:
It's not the solution to job satisfaction issues. While money can motivate employees to work hard, it won't mean much if their working conditions aren't great
In cases where employee retention bonuses are equally distributed, there may be tension between co-workers
It's not a permanent solution to managing your employee turnover rate.
Some employees may take retention bonuses the wrong way and think you're attempting to buy company loyalty.
Factors you need to consider when offering retention bonuses.
Offering your workforce retention bonuses is helpful for the most part, but it's not always possible, so you would need to consider whether retention bonuses are something your business can do before diving in. Here are some aspects we'd suggest you consider when offering your employees a retention Bonus:
Can the business afford a retention bonus?
Probably one of the biggest factors you need to consider is whether your company can afford to pay retention bonuses; if not, then don't even consider it. You don't want to promise your employees one thing and then not hold up your word. Keep in mind that retention bonuses are planned in advance, so you need to be confident that your company will be able to afford that bonus amount when the time comes.
How much do you value your employees?
Consider the value of your employees and how much it will cost you to replace them. Valuable employees are worth keeping, especially employees who boost your company's productivity. In general, replacing an employee can cost you up to four times as much as their original salary. However, opting for a retention bonus instead might even save you money in the end. Sure, it's a large lump sum payment, but in comparison, it isn't as much as rehiring staff constantly.
Compare competitor's salaries
Taking into account how much you pay your staff will also give you an idea of whether you should or shouldn't offer a retention bonus. Check what people in the same industry are earning and compare it to your employees; if you're paying them on par or over the norm, then you might not have to give them a retention bonus. But if you're paying them less when they're working just as hard, you may need to give them a retention bonus to make up for the difference.
Assess employee performance
Assessing their overall performance should also help you decide whether or not they deserve to get a retention bonus. Performance-based bonuses are common these days. They give employees incentives to perform so they can get monetary rewards. Employees who have worked hard over the years would appreciate a raise or bonus to show their appreciation.
Consider seniority
Finally, consider your senior employees. Employees who have been with you through thick and thin have a vast wealth of knowledge that they gained from being in your company.
This knowledge can be utilised in several ways, including training new staff or overseeing important projects. Nothing beats experience, and this makes these individuals valuable employees. Giving this employee retention bonus shows them that you appreciate their years of service, and it gives others who look up to them a goal to strive towards.
You can use our employee retention software to help you assess your employee retention and provide valuable data that could greatly benefit your business down the line.
Alternatives to a Retention Bonus
Retention bonuses are there to encourage your employees to stay at your company for longer. But they are the only way you can show your employees appreciation. There are other types of bonuses and benefits you can provide your employees with to ensure they are content with where they are. Here are a few:
Task bonuses or milestone bonuses are lump sums of money given to employees when they complete a task. Task bonuses usually aren't as large and depend on the task, but they do encourage employees to work harder.
Spot bonuses refer to giving your employees a bonus for completing small tasks as well. These rewards are often small and can be done on the spot as soon as your employee is done.
Sign-on bonuses are a way of drawing in new employees and are often given to them as they sign on to the business. The employer and employee will both discuss and agree on the sign-on bonus amount during the hiring process.
Frequently Asked Questions
Can you negotiate your Retention bonus?
Yes, employees can negotiate with their employer for how much they will get as a retention bonus. However, this does depend on the dynamic of your relationship with your employees. Once you've agreed on a number, the total bonus will be added to the retention bonus agreement.
How many years do you have to wait to get a retention bonus?
This is totally dependent on the organisation. Some employers give their staff retention bonuses for five years while others save them for up to 15 years of work. Either way, it comes down to management.
How much do employees get with their retention bonus?
In general, Employees will get 10% to 20% of their base salary at the time when their retention bonus is due. However, this also changes with different companies. In some companies, the employer gives their staff double retention pay, meaning they get double their salary, like a 13th check. This isn't always the case, though.