Hiring glossary
What is a retention bonus?
A retention bonus is a one-off payment an employer promises to an employee if they stay in their job until a set date or milestone, used to keep critical people through a period of change or risk.
Retention bonuses are used when losing a particular person at a particular time would be costly: during a merger or acquisition, a system migration, a site closure where the business needs people to stay to the end, or when a key specialist has a competing offer. They differ from a performance bonus, which rewards results, and from a signing bonus, which is paid to join.
The usual structure is a fixed amount, or a percentage of salary, paid in one or more instalments after the employee is still employed on the agreed date or dates. Some agreements also set conditions such as completing a project or handing over to a successor. Paying in stages (for example, half at six months and half at twelve) spreads the incentive over the period that matters.
Put the terms in a short written agreement: the amount, the dates or milestones, what happens if the employee resigns, is dismissed for misconduct, or is made redundant before the date (paying out in full when the employer ends the job for reasons that are not the employee’s fault keeps the promise credible), whether it counts towards pension and other pay-linked benefits, and that it is paid through payroll. Agree whether, and how, any amount would be repaid, and keep any repayment clause clear and proportionate.
A retention bonus buys time, not loyalty. Use the period it buys to fix whatever made the risk of leaving high in the first place: workload, pay against the market, career path or management. Track whether the people who received bonuses are still there a year after the final payment. This is general information, not legal advice.
Also called: stay bonus, retention bonus agreement, retention incentive.
Example
During an acquisition, a company offers its two payroll specialists a retention bonus of 15% of salary each, paid half at the system cut-over and half three months later, provided they are still employed. If they are made redundant before either date, the unpaid instalments are paid in full.
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