Sign-on bonuses helping firms get new hires, cap attrition rates3 min read . Updated: 10 Oct 2007, 12:51 AM IST
Sign-on bonuses helping firms get new hires, cap attrition rates
New Delhi: Claret Prakash, an undergraduate, signed on with Accenture Services Pvt. Ltd in February. Prakash was hired by the company to work in its back-office operations at a salary of Rs14,500 a month, a reasonable remuneration for a high-school graduate with experience of less than two years. Prakash also received a sign-on bonus of Rs40,000. “The joining bonus was definitely one of the reasons for taking up the offer," said Prakash.
In the world’s second fastest growing economy, it isn’t just senior executives who receive sign-on bonuses. In an effort to attract talent in a competitive labour market and retain employees, firms are increasingly offering such bonuses to entry-level employees.
Companies such as Cognizant Technology Solutions India Ltd, Genpact Ltd, Oracle India Pvt. Ltd, Google India Pvt. Ltd, Yahoo! Software Development India Pvt. Ltd, Accenture Services and Kelly Services India Pvt. Ltd are among those that offer joining bonuses to junior employees.
These could include fresh management or engineering graduates to employees with two-three years of experience. “The trend of offering sign-on bonus to freshers is catching up in India," says Piyush Kumar Sinha, professor, retailing and chairperson, placement, Indian Institute of Management Ahmedabad. “A considerable number of our students have been offered joining bonuses by recruiters visiting our campus."
Companies have been offering sign-on bonuses to B-school graduates, even fresh ones, for the past two-three years. However, this practice has now been extended to engineering graduates and others, including high-school graduates like Prakash.
“Joining bonus helps the hirer remain competitive in the campus or job market," says Piyush Mehta, senior vice-president, human resources (HR), Genpact. Genpact offers a sign-on bonus to its recruits from business schools, while Accenture offers sign-on bonus to engineering and mangement students on a case-by-case basis.
Staffing firm Kelly Services too offers joining bonuses to some of its junior staff. “We offer anything between Rs50,000 and Rs1 lakh as a joining bonus for a non-management, entry-level joinee who demonstrates potential," says Vishal Chhiber, head, HR, Kelly Services.
Sign-on bonuses help companies maintain parity in salary. For instance, a firm could hire two people at the same level, pay both Rs5 lakh a year, and give the more deserving candidate a sign-on bonus of Rs2 lakh, especially if this premium is needed to convince the person to sign on. The next year, both employees receive increments based on their salary, Rs5 lakh in both cases.
Sign-on bonuses also help companies fight attrition.
“Joining bonus works two ways. First, it locks in a candidate as the bonus amount has to be returned in case of quitting before the term period," says Nanda Majumdar, head, HR, Manpower Services India Pvt. Ltd. “Secondly, joining bonuses can help companies address the issue of candidates who do not take up an offer because of better offers elsewhere or a raise from their current employers."
That could explain why sign-on bonuses are becoming common in businesses such as business process outsourcing, IT, retail, financial services and telecommunications.
Experts say sign-on bonuses work well as a tool to attract and retain top talent, especially those with specialist skills. Unlike performance pay, sign-on bonuses are paid in recognition of a candidate’s potential, which makes the receiver feel valued since not everyone is offered a joining bonus.
As for the bonus amount, the rule of thumb that recruiters follow is that the amount should be equal to the gross salary for two-three months for a graduate and three-six months gross for someone from an engineering or a B-school.
“The sign-on bonus amount typically ranges between 20% and 40% of the total (annual) compensation," says E. Balaji, chief operating officer, Ma Foi Management Consultants Ltd.
While an entry-level joinee with an engineering degree or a graduate with special skills could take home a bonus of Rs1-3 lakh, sign-on bonus for a management student from a B-school can be as high as Rs5 lakh. “Although there’s a prevailing range, the bonus amount depends largely on the criticality of role, urgency of the company’s requirement of the candidate and niche skills," says Balaji.