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Need advice on sign-on bonus in offer letter
Old 07-18-2013, 07:08 PM   #1
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Need advice on sign-on bonus in offer letter

So I know there are lots of people with good experience and advice here, even if you are retired.

I have a question on behalf of my nephew. He just received an offer letter where the terms of the sign on bonus are that if he leaves prior to 36 months, for any reason, he must pay it back. While interviewing, he was told they would buy out his current bonus, but this doesn't seem like that is factual, they are, in essence, making it part of his pay.

I am not an expert in this area, but it seems wrong to make him pay it back under a situation that is not in his control, and also, 36 months seems like it is too long.

I told him he should not accept as is, but try to negotiate better terms, of course, I don't know what to recomomend!

I would appreciate any thoughts on this situation if you have experience in this arena.

Thank you.
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Old 07-18-2013, 07:15 PM   #2
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How is it part of his pay? He's getting paid a salary. After 36 months of work he earns a bonus, except they are paying the bonus up front instead of making him wait for it. Sounds more than fair to me, but then I've never had the pleasure of getting a bonus of any type so what do I know?

The only thing I might try to have changed is that he collects the bonus unless he is fired for cause. That takes care of the "I left under no control of mine own" argument.
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Old 07-18-2013, 07:29 PM   #3
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I've seen 24 months a lot but not 36 months. The bigger issue is the culture and his new boss. He needs to get inside information, talk to people who worked there before, and be as certain as possible that he will get along with his new boss. 36 months could be because they have high turnover and a poor culture, maybe not but possibly.
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Old 07-18-2013, 07:54 PM   #4
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36 months is way too long. I think all of my sign-on bonuses have been 1 year (2 max). Another important factor is whether they pro-rate the amount you have to return if you leave early.
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Old 07-18-2013, 08:29 PM   #5
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Thanks for your quick responses. Definitely some things to consider.
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Old 07-18-2013, 11:18 PM   #6
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As utrecht stated, the situation is definitely manageable, but would require solid financial discipline (e.g. invest the amount in fairly safe bonds, and don't do anything else with it until you're 100% sure it's fully yours).

I've never heard of such a clause. A one year retainer, ok, but three years? I don't know, this sounds rather suspicious to me, and speaking poorly of the hiring company. If the employer can't decide to fully trust you (and you to trust them) within a year, then something is amiss. Plus, as you said, anything can happen in such period of time which isn't in your nephew's control.

Of course, it totally depends on personal circumstances, and how hard/easy it is for your nephew to get a job, but personally I'd play hard ball, and just go away if the employer refuses to reduce the timeout period to 12 or 18 months max. Both parties have to demonstrate a minimal level of trust...

PS. somehow this also sounds like an excuse in the making for NOT distributing any additional bonus (e.g. performance based) in the coming 3 years. I can see the HR rep stating 'but you already have a bonus coming, don't you?". Well, no, a hiring bonus isn't a yearly bonus!
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Old 07-18-2013, 11:35 PM   #7
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My sign-up bonuses have always been with one year. Never heard of 3 years, but I haven't looked for a job in 12 years, so maybe things have changed a bit since then.
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Old 07-19-2013, 02:21 AM   #8
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I agree that the concept is not unfair, but the duration is too long. If he has some negotiation leverage, counter at 18 months.
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Old 07-19-2013, 03:46 AM   #9
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I know at my Megacorp we required people to payback relocation expenses if they left in less than 24 months. So while I think 3 years is longer than normal it isn't crazy out of the ordinary.

Realistically, he won't have to pay it back unless he quit. If he was laid off or terminated, I doubt they would risk a lawsuit to try and get the money back.

Still it is entirely reasonable to ask some hard questions: is this standard for bonuses, what are the conditions for paying back, and could it be prorated say 1/3 a year.
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Old 07-19-2013, 08:29 AM   #10
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Clawback for a signing bonus should be no more than 1 year. Clawback for moving expenses should be a year, but I've seen them up to 2 years. Never seen a three year schedule except in vesting situations, and then what's vested in a year is yours forever, even if you don't stay through the whole vesting period.

Either this company has especially aggressive bad legal advice, or they are positioning themselves to clawback this bonus. If he takes the job he'll be trapped for three years under penalty of having to pay back the bonus, while they will be free to terminate him at any time and if they do, they get their bonus money. Sounds like a bad situation.
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Old 07-19-2013, 09:38 AM   #11
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I guess the unemployment rate is dropping if we are a point where we are arguing over whether or not the signing bonus is good enough.
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Old 07-19-2013, 05:59 PM   #12
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I guess the unemployment rate is dropping if we are a point where we are arguing over whether or not the signing bonus is good enough.

Well, in my opinion, I would think anyone who is employed is in a position to negotiate.

Thanks to all for the thoughts!
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Old 07-19-2013, 07:45 PM   #13
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Originally Posted by utrecht View Post
I guess the unemployment rate is dropping if we are a point where we are arguing over whether or not the signing bonus is good enough.

Definitely the quote of the day! Good one
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Old 07-19-2013, 10:03 PM   #14
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The bigger issue is the culture and his new boss. He needs to get inside information, talk to people who worked there before, and be as certain as possible that he will get along with his new boss. 36 months could be because they have high turnover and a poor culture...
This would be my first concern, too. He should also look around the employee parking lot and take note of the work attire of the employees arriving for work. Is there a culture of conspicuous consumption?

I would suspect the employer uses this aggressive hiring bonus because it works to minimize turnover among those that take the bait agree. A small number of people would have the discipline to set the money aside rather than spend it, increasing the employer's leverage for setting demanding work conditions and production goals.

Expectations of fancy suits and high-dollar socializing, paying performance bonuses that are a big % of compensation, offering low-interest mortgages that have to be refinanced at termination would all be red flags. They are all tactics to keep the younger employees in line. Wall Street and big law firms with a partner structure have done it for years.

The flip side is that jobs with those kinds of perks tend to have high earning potential. A LBYM lifestyle would be even more important in such an environment.
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Old 07-19-2013, 10:42 PM   #15
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I would be concerned about a revocable bonus that would have to be repaid if he left for any reason. This puts too much power in the hands of the employer, who has a financial incentive to fire the employee for dubious reasons within 3 years unless he is outperforming. However, I have seen these signing bonuses for physicians in under serviced areas. They are often tied to the position for 4-5 years.
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