Retention Bonuses: Are They Worth It If Employees Don't Perform Well?

Hi All,

I am definitely part of the retention bonus scheme. The concept of a retention bonus is appealing, but it raises questions about its ultimate purpose. I am curious to delve deeper into this matter. By providing a provision or guarantee for a retention bonus, the aim is for employees to remain with the company, increase productivity in the long term, and offset recruitment costs. However, there is a scenario to consider. An employee may choose to stay for the bonus but might turn out to be an average or below-average performer during annual appraisals. This situation could result in the employee gaining experience on their CV while still benefiting from the retention bonus. In such circumstances, wouldn't it be more prudent to forgo the retention bonus?

I appreciate your insights on this matter.

Regards,

Balaji

Hi, Balaji,

Research proves that the cost of replacing an employee is on average 3 times the CTC of that position. This includes hiring costs, training costs, time to settle, etc.

Also, certain projects require the commitment of a dedicated person, hence the retention bonus may be useful in such cases.

Other views are welcome.

Regards,
Pooja

Hi Pooja,

Many thanks for your comment. I am in total agreement with your view. The cost of hiring is excessively high, and in many cases, the cost of settling down for a new employee, when combined with certain intangible factors, significantly increases the overall cost. I presume this holds true for projects, especially in the software industry, but how much of an impact will a retention bonus have in the case of process or product-based industries in manufacturing? In such industries, the retention bonus is beneficial for employees who gain experience in the industry, whereas freshers are often unsettled.

I would like to invite all HR professionals to provide their insights.

Best regards,
Balaji

Could anybody suggest whether we should mention the Retention Bonus in our payslip or appointment letter? Right now, we are deducting 20% of the increment as a retention bonus, which is payable to an employee after one year.

Lots of factors should be considered before putting in place a "Retention Bonus Program," such as:

1. Cost of hiring
2. Cost of training
3. Time to recruit
4. Cost of a temp to do the work (if possible)
5. Cost/issues with sharing the work until someone is hired

These are just some of the factors. Hope this helps!

Thanks,
Tarun