Retention Bonus Dilemma: Is It Part of Fixed CTC and Can It Be Recovered If You Leave Early?

Hello Everyone, I have a query related to the Retention Bonus.

1. Is it a part of the fixed CTC?

2. If yes, can a company recover the Retention Bonus during F&F once paid, if an employee leaves the company before completing 1 year, and as per company policy, the company can do so?

3. If no, how should a company pay a Retention Bonus?

Dear Priyanshi,

Your company wishes to pay some amount of money to the employee. In lieu of the disbursement of this amount, which you are referring to as a "retention bonus," the employee should serve 'X' number of years in the company. If he fails to serve, then you wish to recover some amount from his FnF.

Suggestion 1: Stay Bonus

Rather than treading on the boggy terrain, I have two suggestions. First, instead of paying the "retention bonus," you may pay him a "stay bonus." If the employee serves for 'X' number of years and also delivers a desired level of performance, commit to the payment of a certain amount. He becomes eligible to get this stay bonus provided he does not quit the company.

Suggestion 2: Salary Increase

The second option is to increase the employee's monthly salary. Nevertheless, there will be no commitment to serve, nor will there be a recovery.

Caveat: Culture and Motivation

However, I would like to add a caveat. Whatever option you choose, there is a risk of making the company pecuniary-centric. Employees should stay in the company because they feel that there is a culture of autonomy or empowerment in your company or they feel that their self-actualization need is fulfilled by staying in the company. If you start paying a bonus for their stay, it is nothing but a trade-off. Please ponder over the unhealthy consequence of the culture of quid pro quo.

Thanks,

Dinesh Divekar

Retention Bonuses and Their Payment Structure

Retention bonuses are usually paid after a certain period of retention (end of 1 year, 3 years, 5 years, etc.) in the organization. In my opinion, it should be part of the CTC but only paid after fulfilling the conditions, i.e., end of 1 year, 2 years, 3 years, etc.

It is better to limit the time period to a maximum of 1 year or 2 years. The bonus should not be paid before the retention period is over.

S K Bandyopadhyay (WB, Howrah)
CEO USD HR Solutions

If you could share the terms and conditions governing the Retention Bonus, it would facilitate providing a useful reply. Otherwise, it would be like taking a shot in the dark.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant