More Employers Use Rentention Bonuses


Reliance on retention bonuses to ensure the continued service of terminated employees up to a specified date has steadily increased over the past eight years, according to research by global human capital solutions company Lee Hecht Harrison.  

 

The companyís 2005 study Severance and Separation Benefits: Benchmarks for Evaluating Your Policies, based on a survey of 1,030 human resources executives, finds that while retention bonuses still arenít universally embraced, over half (51%) of U.S. organizations now offer them.  This is up from 46% in 2001 and only 36% in 1998.

 

One reason for the increased use of retention bonuses may be that the fast changing global business environment is producing more scenarios in which organizations need to temporarily retain employees tagged for separation.   Such scenarios include offshoring and outsourcing as well as mergers and acquisitions, plant closings, facility relocations and corporate restructurings that require the redistribution of work.  Retaining key employees during these events helps to facilitate a seamless transition.

 

Despite the growing acceptance of retention bonuses a consensus method for calculating them has yet to emerge.   Where formulas do exist, they tend to be based on additional severance or a percentage of salary, but most organizations indicate they have no set formula.   The most common approach is to negotiate these bonuses on an individual basis.  Of the respondents whose organizations offer retention bonuses, 57% say they are individually negotiated for senior executives (EVP, SVP or equivalent), 52% for executives (VP, department head, director), 40% for professionals (managers, functional staff) and 38% for administrative employees (secretarial and support staff).

 

 

There are several reasons organizations may prefer to determine retention bonuses on a case-by-case basis with individual employees:

 

Since they are faced with ultimate separation, individuals being offered retention bonuses are likely to feel resentful towards management.  Engaging in individual negotiations with employees being asked to stay through a transition may serve to make them feel more empowered and appreciated than they would if offered a pre-set amount.

 

A bonus based upon some pre-determined calculation may not be appropriate in all cases. Organizations may prefer having the flexibility to make retention bonus decisions based on what each employee does, how well he or she does it, and to what extent his or her loss would affect organizational performance during the transition.

 

The existence of formal calculations for retention bonuses creates an expectation that such bonuses will be given.  It may be preferable to create the perception that retention bonuses are the exception rather than the rule.

 

While individual negotiations are more common pre-set formulas do have their adherents.   Among respondents whose organizations offer retention bonuses, 35% say they do so as additional severance and 21% say they do so as a percent of salary.

 

If Retention Bonuses are Calculated as a Percentage of Salary

What Formulas are Used at Different Employee Levels?

 

Senior Execs

Execs

Professionals

Admin

Less than 10% of salary

14%

18%

24%

38%

11% - 20% of salary

43%

42%

50%

46%

More than 20% of salary

43%

40%

26%

16%

 

 

If Retention Bonuses are Given as Additional Severance

What Formulas are Used at Different Employee Levels?

 

Senior Execs

Execs

Professionals

Admin

1-2 months of additional severance

39%

53%

68%

76%

3 months of additional severance

33%

22%

24%

16%

More than 3 months of additional severance

27%

25%

8%

8%

 

Companies that calculate retention bonuses as a percentage of salary typically give senior executives, executives and professionals more than 11% of salary while administrative employees are generally given either less than 10% or 11%-20% of salary.  Those companies that calculate retention bonuses as an amount of additional severance tend to give senior executives either 1-2 months or 3 months of additional severance, while most executives, professionals and administrative employees are given 1-2 months.

 

The 44-page report, Severance and Separation Benefits: Benchmarks for Evaluating Your Policies, includes overall findings on severance, benefits continuation, outplacement and retention benefits, as well as results broken out for each of the 16 industries, seven company size ranges, and the Fortune 1000.  The survey, completed by 1,030 human resources executives from a representative sample of U.S.-based companies, was analyzed for Lee Hecht Harrison by the Guideline division of New York research firm Find/SVP. It has a margin of error of +/-3%.  A summary of the report, Severance & Separation Benefits:  Benchmarks for Evaluating Your Policies, is posted on Lee Hecht Harrisonís web site at www.LHH.com.  Requests for the complete report should be made by calling 800.611.4LHH.