Dear Rkandadai,
Retention Bonus is one of the important tools that are being used to retain employees. It is an incentive paid to an employee to retain them through a critical business cycle.
Retention bonuses are becoming more common in the corporate world because companies are going through more transitions like mergers and acquisitions. They need to give key people an attractive incentive to stay on through these transitions to ensure productivity.
Non-management employees generally receive about 10 percent of their annual salaries in bonuses, while management and top-level supervisors earn an additional 50 percent of their annual salaries. While bonuses based on salary percentages are the generally used, some companies choose to pay a flat figure.
In some companies, bonuses range from 25 percent to 50 percent of annual salary, depending on position, tenure and other factors.
Retention bonuses are generally vary from position to position and are paid in one lump sum at the time of termination. However, some companies pay in installments as on when the business cycle completes. A retention period can run somewhere between six months to three years. It can also run for a particular project.
A project has its own life span. As long as the project gets completed, the employees who have worked hard on it are entitled to receive the retention bonus. For example, the implementation of a system may take 18 months, so a retention bonus will be offered after 20 months.
For example Mphasis-an EDS co, is providing cash component based retention bonus plan for its employees. This is mainly to retain good employees and provide them a cash incentive to keep them motivated.
I hope this brief description helps you to understand the concept of RETENTATION BONUS.
KATYANA