What is a Retention Bonus?

Have you been offered a retention bonus at work, but do not have much of an idea about what this means? Don’t worry, we’ll help you out. We will discuss all the facets of a retention bonus in this article – what it means, when it is given, why it is given and if it is beneficial to its recipient.

What Does a Retention Bonus Mean?

A retention bonus is bonus pay extended to the employee of a company conditionally. The financial incentive is used to help companies with employee retention. It is offered to a company employee on the condition that they will continue to serve their employment at the company for at least an extended decided upon period of time.

When and Why are Retention Bonuses Given?

Retention bonuses are usually handed out to valuable company employees during times of organizational change for the company. It is a way of acknowledging that the company could really use the skills and know-how of so and so employed individual. A manager can expect to receive the offer of a retention bonus if he/she has expressed a desire to leave or if the company is undergoing a merger with or an acquisition by another company.

A retention bonus is usually a one-time payment and has grown in popularity in the recent times due to increased incidences of corporate poaching. If a rival company has offered a high-level talent at your company with a better package, you can bring out the retention bonus and hope to have been able to successfully incentivize your company talent to stay back and work for you.

Similarly, if a company is slated to go through challenging times in the near future, it attempts to retain its best employees to help it sail through the challenges. For eg: In case of a merger, a company may have received directive to let go of a certain portion of its employee base. While it might do so, it will also want to motivate its best performers to continue working for them. The company may then offer these senior and key employees a retention bonus as a last-ditch effort to retain them within the fold of the company.

Will You Benefit From a Retention Bonus?

A retention bonus is usually either calculated based on a percentage of your salary, paid at the end of the month, or it is paid as a lump sum. The amount paid as your retention bonus cannot exceed 25% of your salary’s base pay.

So, ought you to take this retention bonus and stay on at your current place of employment or should you refuse it and follow your dreams? Well, you could take the retention bonus being offered to you. After all, it is one of the ways in which your employer can show gratitude for your service and remind you how much they value you as an employer. However, at the same time, you might want to consider that you will have to pay taxes on your retention bonus as it is considered supplemental wage by the IRS. Additional pay, in the form of a retainment bonus, could undoubtedly benefit you but it is yours to decide whether you’d want to accept this bonus or not.

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