The era of “Grand Resignation” is here and managers across industries are already feeling the heat. A study by Allegis Group shows that almost 83 percent of current employers find attracting and retaining talent a major challenge.
The trend of quiet quitting is catching up with employees at alarming rates and is something every business owner should be wary of.
They usually leave if there’s a lack of career development at an organization, poor well-being, inappropriate behavior by seniors, lack of work-life balance, or unsatisfactory compensation.
Subsequently, employers are falling back on employee retention strategies to keep their workforce, a significant competitive advantage, intact. One of the most popular retention strategies is extending retention bonuses, which we will discuss in this extensive guide.
Stay with us to learn the ins and outs of retention bonuses, the benefits of awarding them to employees, and retention bonus strategies managers can use in 2023.
So let’s cut to the chase and get started, shall we?
What is a retention bonus?
It’s crucial that you are well acquainted with the term “Retention Bonus.” It is essentially a financial incentive, often delivered as a targeted payment or reward, with the intention of keeping an employee from leaving the company.
A retention bonus or employee retention bonus (ERB) is generally offered when the company is undergoing a critical business cycle or when it is running a crucial production period.
The incentive or payment helps companies retain their employees and keep them from quitting or leaving the role, more importantly during a disruptive period like a merger, restructuring, or reorganization.
Did you know that almost 81 percent of the biggest organizations on the planet deploy the retention bonus tactic to keep their key employees from leaving?
This one-time payment is an amount of money (a lump sum payment) that is usually 20-30 percent of the employee’s base pay.
Indeed, a retention bonus is a one-time payment. But, organizations have been using this tactic more recently to encourage employees to stay with the company, especially in peril.
Not just that, companies offer retention bonuses to not let employees share company-specific or technically-specific information with the public.
Companies will be more than willing to offer retention bonuses to their best performers as these are the employees that will help execute a successful merger or acquisition.
However, retention bonuses depend on several factors that an employer has to consider.
Some of the most important factors include:
- employee’s base pay and role
- length of service
- length of the project or acquisition
- revenue of the project
- amount of time employees have to give to the project
- available budget
- company’s financial stability
- and more…
Now that we understand why companies extend retention bonuses, let’s move ahead and figure out the benefits of retention bonuses for both employers and employees.
7 Retention bonus examples and strategies for managers
Does the retention bonus always have to be extra cash? Well, a company wants its key workforce to stay in trying times. And extra cash will not always make a retention bonus attractive enough to accept.
What should managers do to make ERBs more lucrative? Here are some of the best retention bonus examples and strategies we recommend to managers across industries.
1. Offering higher base salaries
Employees tend to work hard and perform better right off the bat if the organization shows that it values them. Ask this question — “Are you offering a wage worthy of the time and sacrifice of the employees?”
Poor compensation or employee’s salary policies will eventually leave you with employees that will not think twice before quitting in your hard times.
Managers should devise an employee retention bonus in addition to offering higher base salaries and hourly wages. The employees should be additionally compensated with respect to their experience levels and growing cost of living.
2. Letting employees work from home
Why not? Most employees are already considering quitting their jobs to find a “work-from-home” alternative.
It’s high time managers include WFH in their employee retention bonus strategies. The pandemic has made employees think about their work-life balance and how it impacts their overall well-being.
Remote work is an excellent retention bonus example we recommend managers offer the key employee during an upheaval. This will also lead to a significant reduction in nonessential meetings while providing employees greater control over their lives.
3. Allowing flexible work schedules
Companies that give employees more control over their work have better worker retention. Another employee retention bonus example we would like to share is flexible work schedules.
Indeed, the circumstance that will require you to execute an employee retention bonus strategy will be quite demanding. You’d want employees to put the pedal to the metal and work to the best of their abilities.
The traditional office environment isn’t working for modern-day employees that want to establish a work-life balance. Would this impact employee productivity?
Well, a 2019 study shows that two-thirds of the workers surveyed claim to be more productive outside of a traditional work environment.
4. Offering reduced workdays
All managers know that employees are more productive on certain days of the week. In other words, offering employee retention bonuses doesn’t necessarily guarantee an increase in productivity.
Managers should consider complimenting the employee retention bonus agreement with reduced working hours or workdays. Remember, productivity decreases when workers exceed the 50 hours/week rate.
So giving your key employees the much-needed rest will help boost productivity.
We suggest you find the most productive work patterns at your organization and prepare ERBs that also help boost productivity without increasing workload.
5. Creating a better work culture
Does extra cash overcome a bad work culture? Key well-compensated employees will look for opportunities to leave an organization with a toxic work culture.
Company culture matters to employees that want to stay with a company for a long time. Are you a manager looking for employees that can provide long-term commitment?
You will have to complement your retention bonuses with a work culture that employees just won’t want to leave. When managers achieve an excellent work culture, retention strategies tend to work more effectively than ever.
6. Providing wellness perks
How can managers ensure a healthy workforce and how can it be a part of their employee retention strategies? The recent pandemic showed how important it is to maintain both mental and physical health to live a better life and function properly.
We suggest managers provide their key employees with quality health insurance with excellent coverage across tiers. This will show the employees that you care about their health. Perfect insurance coverage as an employee retention bonus?
Employees are going to love you for that!
7. Other perks and discounts
As a manager, you should come up with perks that help employees meet their expenses.
You can provide them with good healthcare and discounts on expenses like cell phone services, commute and travel costs, car rentals, accommodation costs, food, and more.
In other words, employee retention bonuses don’t always have to be extra cash. Managers can get creative and attract key employees with the retention bonus examples mentioned above.
What are the benefits of employee retention bonuses?
So, companies are going to pay employees more than what they already agreed to pay?
While employees would love to grab some extra cash, why would a company even ever agree to that? Well, there are certain benefits of offering a retention bonus.
Competitors are always poaching for the best talent and skill in the market. And paying your best employees a retention pay can help you keep your competitive edge intact, especially when your company is undergoing massive upheavals!
But, that’s not it. Extending retention bonuses come with a number of benefits for employers. Let’s discuss them briefly.
1. Boost productivity
Companies undergoing major disruption want their workforce to fire on all cylinders. Productivity is a huge benefit of offering retention bonuses. Indeed, paying a retention bonus has nothing to do with job performance.
But, offering such lucrative financial incentives will help motivate employees to perform better and commit to the goals and objectives that matter most.
Retention bonuses will help boost employee engagement, which can lead to an increase in productivity by 18 percent.
2. Foster key employees’ loyalty
A company becomes a formidable force when it has a loyal workforce. Such employees will never leave the company when it needs them the most. Of course, you are trying to make employees stay at your company using a retention agreement.
But when other employees see team members staying at the organization despite the massive upheaval the company is undergoing, it fills them with confidence and pushes them to stay loyal to the company.
It is one of the most effective ways to inspire organization-wide loyalty.
3. Retain the best talent and knowledge
Companies do everything possible to gain an edge. The market is so competitive, organizations tend to treat information as an asset. After all, information in this day and age is power.
When employees leave, they leave with crucial information about the company that can be beneficial to the competitor. Offering retention bonuses during tough times will help keep the knowledge and experience inside the company.
4. Boost employee morale
A company that’s already going through disruption will fail to function if it has an unmotivated workforce. A retention bonus will help boost employee morale and bring up spirits.
Offering extra cash will make sure the key employees are made feel more valued, which will eventually make them not leave the organization.
This is an excellent example of putting your money where your mouth is. The extra cash or retention bonus will show that you value your employees and their hard work, especially in such trying times.
What to include in retention bonus agreements?
Retention bonus agreements need to be clear in terms of communication. The key employee should know what is being offered. What should companies include in a retention agreement?
Use this list to write a complete and well-rounded employee retention bonus agreement.
- Mention the retention period for the employee. This is the period the employee will stay with the company.
- The total value of the retention bonus and its break up. More importantly, make the employee aware of the calculation method used to come up with the retention bonus value.
- Mention the relevant tax method. This will help the employee to meet their tax obligations.
- Mention how and when the employee will receive the retention bonus. Clearly mention if they will receive a lump sum payment or in parts.
- List the stipulations that the employee retention bonus might depend on. This can be productivity goals, project completion goals, or deadlines.
- Mention the new responsibilities and roles if any for the employee. The idea is to let the employee know what the company expects of them during the disruption.
- Does accepting the retention bonus have a knock-on effect on other benefits the employee enjoys? Make this very clear to prevent misunderstanding along the way.
Employee retention can become significantly overwhelming for managers and HR departments, especially if they don’t have the right tools and solutions. A retention bonus is one such solution that just works when deployed strategically.
Indeed, it’s a business tactic to keep the workforce from leaving. But, retention bonuses can go a long way in developing and promoting a healthy working environment and boosting overall employee productivity.
We believe businesses should not extend retention bonuses as a form of financial incentive. Instead, managers should use retention bonuses as a means to encourage and award excellent performance.
There you have it. We shared everything you need to know about retention bonuses. Did you find this guide helpful? Get in touch, we’d love to hear from you!
Also, don’t forget to check out other informative posts on the blog!