Retention Bonuses Stage a Comeback

Although rotary dial phones and electric typewriters may not return to the workplace anytime soon, retention bonuses may be back in vogue. A small business owner in Charleston, S.C., is offering his employees a $50,000 bonus if they stay with the company for five years. They get $250,000 if they stay for 25 years. While achieving that might be a bit of a stretch, the employees say the incentive keeps them from seeking greener pastures.

Retention bonuses for the rank and file were popular during the 1990s, when the cost of recruiting and turnover totaled thousands of dollars. There’s no doubt that a bonus can be an effective retention tool, especially when turnover devastates productivity and the chances of replacing an existing employee for the same salary is nearly impossible.

Of course retention bonuses aren’t a magic bullet for a bad work environment. And, employees need to understand that they won’t be around to collect if they don’t meet their performance goals. Include a confidentiality agreement if the bonus isn’t offered to everyone, and make sure the amount is significant enough to inspire loyalty, but not so high that employees spend their days dreaming about their future life on Easy Street.

Finally, stagger bonus periods and pay-out dates so you don’t face a mass exodus once the tenured employees collect their rewards. At the very least, a retention bonus might be a way to keep valued employees away from the competition as the economy heats up.

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