How a company should pay a Retention Bonus? Is it a part of fixed CTC?

Hello Everyone,

I have a query related to Retention Bonus.

1. Is it a part of fixed CTC?
2. If yes, can a company recover 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.

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.

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.

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 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

Dear Madam,

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