When it comes to human capital, every manager knows it can be difficult to retain the best employees. They’re in high demand, and they may get a bit restless in their current position, especially if they feel that their skills aren’t being appreciated or that they could make more money elsewhere. Thus, a retention bonus may seem like a good idea. However, they may be more trouble than they’re worth.
Retention bonuses don’t really work
Perhaps the biggest problem with trying to retain employees by paying them a bonus is that they simply don’t work. According to a post on ERE, there is no evidence that retention bonuses even work, and there are many reasons this is the case.
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For example, in the case of a difficult merger, less than half who are offered the bonus will take it to stay, and most of those who do take it end up leaving the firm within six months after they receive it. In fact, the biggest problem with such bonuses is that they provide no guarantee that the employees they are paid to will actually stay with the firm.
While it may be questionable from an ethical standpoint, it isn't uncommon for employees to take the retention bonus, stay a little while after receiving it, and then leave anyway. Top-performing employees might decide not to even take the bonus and look for a job instead. The sign-on bonus they receive from their new job will likely be more than the retention bonus you offer.
It is possible to put some sort of agreement in place so the employee will be required to stay for a certain amount of time after they receive the bonus. For example, you might consider spacing out payments on the bonus or creating a loan that's gradually forgiven over time. Without such safeguards, there is no guarantee that the employee will stay after receiving the bonus.
While employees would generally feel ethically obligated to stay for a while after accepting a retention bonus, there seems to be no consensus on how long they feel they should stay. The reality is that such bonuses merely create an obligation or a payoff for someone not to leave immediately, but they rarely translate into any long-term loyalty in the employee.
Money isn't always the reason employees leave
Additionally, money may not be a significant motivator to keep employees who want to leave around. One reason many workers leave is because they don't like their supervisor, so providing a one-time bonus may not make it worthwhile for them to continue dealing with a supervisor they don't get along with.
Another reason money may not be a big motivator is if the employee simply doesn't like their job. A retention bonus may keep such employees around temporarily, but it won't make them more engaged or productive while at work.
After all, a one-time payment won't cause them to enjoy their job more. The reasons they don't like their job will continue, and it may not take long to forget about the money they received as a one-time bonus. To keep such employees around, it will be necessary to make other changes before handing out a bonus to convince them to stay.
Unintentional side effects of retention bonuses
In some cases, a bonus may come across as a desperate act by management to keep employees around. As a result, it could make them feel less confident in the company, and they may end up leaving even if they weren't thinking about quitting before. The retention bonus may cause employees to think the business is sinking, so they may want to seek perceived stability elsewhere.
Additionally, when employees are offered a bonus to stay at their company, they become more attractive to staffing managers at other firms because it's clear that they are an excellent employee. Thus, recruiters may increase their efforts to draw desirable employees away from your company.
Firms that advertise retention bonuses may unintentionally drive away employees who otherwise weren't thinking about leaving by convincing them to look for another job. These employees may look elsewhere in hopes of qualifying for a bonus, so you may end up having to pay a bonus just to keep workers who otherwise were happy in their current position.
Many other unintentional consequences may also occur when bonuses are offered to retain employees. For example, employees may develop an attitude of entitlement. While retention bonuses can provide a level of security in the minds of employees, they could also cause workers to feel overly confident in their positions and take risks they otherwise wouldn't think of taking. They might believe that they are so irreplaceable that they can do or say pretty much whatever they want without any consequences.
Further, employees tend to talk to each other about different things, including when they receive a bonus to stay. Those who don't receive bonuses may resent those who do. Their morale may also decline because they may feel like they are not as vital to the company as those who did receive a bonus. Those outside the company may start to see it as a sinking ship due to high turnover.
Retention bonuses don't solve some of the biggest issues
While paying a bonus to convince workers to stay with the company may indeed convince them to stay, it won't fix one of the biggest issues you may be seeking a solution for. A retention bonus is paid specifically for staying at the company and not for improved performance. Thus, a different kind of bonus will be required if you wish to improve employee performance. In the case of large retention bonuses, employees may even feel like they can relax because they are being paid merely for staying with the company and not for being more engaged or driven for better performance.
Additionally, paying a bonus to an employee for staying is expensive, and other retention tools tend to work better while costing less. For example, just talking to employees about why they are thinking about leaving will enable you to fix the problems that cause them to leave before they actually do.