If someone works for nearly a year at a company, the bonus is a compelling reason to stay and collect the money. When hiring, many companies pro-rate the new employee's first year bonus. The result is that departing employees race out the door once bonuses are released, and incoming employees try to start as early in the year as possible.
Some companies wait several months past year's end before paying bonuses. This practice keeps the employee in-house well into the new year, and acts as a deterrent to mid-year defections. In addition, it allows an incoming employee to receive only a partial or pro-rated bonus from the new employer. When someone does leave well into the fiscal year, months of work were performed which are free of bonus compensation and save the company money. The actual policy behind a pro-rated bonus will vary. Some examples are a proportion of the full bonus based upon time served or a mid-year cutoff for full bonus.
To the uninitiated, all this might seem needlessly complex. However, when bonuses run twenty percent to fifty percent of a base salary that approaches or breaks one hundred thousand a year, the gains and losses clearly affect job changing. Even if the compensation numbers are lower, the impact on the individual is the same. For upper management and moneymakers like traders or brokers, the figures are much higher.
Hiring occurs throughout the year and some hard decisions need to be made during the last quarter. Will a candidate change jobs for an increase in base salary but a loss of one year's bonus? A company can simply wait until competitors pay bonuses. The other choices are to pay a comparable bonus to the new employee for only a few months work or to pay an exceptionally high base salary that incorporates the loss of bonus. Companies are forced to conclude that if the loss from waiting outweighs the cost of hiring then they must cover a candidate's bonus. A candidate changes jobs for an increase in base and the expectation of greater bonus potential. The act of negotiating is challenging under normal circumstances, so the pressure is much greater when dealing with bonus coverage. The balance of arriving at an equitable offer is usually shared by the company and candidate. In these conditions, a higher burden of cost is carried by the company. In return, the candidate should exhibit a reasonable approach knowing the great expense that the hiring company must endure.
Two negotiations occur simultaneously. The first is to arrive at an acceptable base salary. If the candidate is a few months away from a bonus pay-out, then the candidate might also receive a review and raise at the same time. This means the hiring company must also consider how much more the candidate will be earning in the near future.
The second negotiation is on the amount of bonus coverage. There is less room for equivocation because the candidate is expecting to receive a set amount. Offer less and the candidate loses money. Not everyone is given hard figures on a future bonus. By examining the candidate's compensation history, importance to current employer, and the current employer's year to date revenues and earnings, an approximate value can be reached. Companies that award bonuses themselves should be able to estimate what a competitor will do.
If the hiring company decides that all this money is too high a premium to pay and makes a scaled down offer, the candidate might refuse and simply stay. With the new year only a few months away, the candidate will receive the bonus, perhaps a raise, and enter the job market at the start of a fresh, new hiring season.
To succeed in the negotiation, the candidate must recognize several realities. If the job is an excellent opportunity, it might not exist at any other time. If a hiring company does not quite reach the desired levels but is reasonable, a valuable offer is still being presented. The willingness of a company to pay the extra premium is an expression of good faith. A few thousand dollars will not seem like much of a difference in the future when compared to a very positive change in one's career. ~ The last hurdle is a possible counteroffer that could be more generous than normal. The candidate is resigning just short of a bonus and potential raise. The current employer can easily increase the raise and bonus levels plus add a promotion. These changes may not even be expressed as a counteroffer but could be presented as what the candidate would have received in a very short time. The current employer can make a very strong, sincere, and convincing case.
Hiring under these circumstances is a test of a company's will and understanding. The same is true of the candidate's commitment to change jobs.
Ronald Weiss has been a New York based technology headhunter since 1984 and started the BMW Group in 1990 with two partners. He remains a hands-on recruiter, in addition to training staff and co-managing the business. His degree in Communication and Science is from The American University.
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