Want to retain your top talent? It might be time to consider offering a retention bonus.
Designed to keep an employee on board until a set date or milestone, nearly 60% of organizations are investing in these one-time payouts. But is a retention bonus right for your business?
What is a retention bonus?
A retention bonus is a reward that companies offer to encourage key employees to stay with the company for a set period of time. Usually paid as a lump sum, these bonuses often use the percentage method, amounting to 5% to 25% of an employee's base pay.
How does a retention bonus agreement work?
While retention bonuses are sometimes distributed to reward team members, they also function as a safeguard against employee turnover during a hot job market or to preserve continuity during a merger or other important business transition.
There are 3 main ways a retention bonus can be structured:
- Lump sum payment distributed upfront or at the end of the defined period. This is often best for short-term retention. It typically includes a repayment clause in case the agreement changes or ends early, in which case, the employee may be required to forfeit the bonus.
- Installments split into equal payments over time, which is ideal for longer-term commitments.
- Graduated payments paid regularly, with a bigger final payout to incentivize employees to stay for the entire period.
4 real examples of employee retention bonuses
Want to see how the pros do retention bonuses? These 4 examples reveal what works, what doesn't, and why throwing money at the problem isn't always the answer.
1. Apple’s big-ticket stock options
Large retention bonuses are common in high-demand fields like software engineering. For example, Apple has been known to offer premium retention bonuses – in the form of stock options ranging from $50K to a whopping $180K – in an effort to prevent competitors from poaching its employees.
But be warned: no amount of money can make up for a toxic work culture. Apple still lost employees who felt that, while its bonus offering was great, the company’s work environment left a lot to be desired.
➡️ Key takeaways:
- Bonuses don’t have to be cash-only – stock options or other benefits are also attractive alternatives.
- The four-year vesting period was an effective long-term incentive, encouraging employees to stick with the company rather than taking shorter-term offers at other companies.
- Apple used these bonuses as a response to a competitive job market, counteracting Meta’s aggressive hiring tactics.
💡Bonus tip: Offer perks employees actually want. Get inspired with these totally doable employee benefits for companies of any size.
2. Amazon's Pay to Quit program
Amazon's ‘Pay to Quit’ program offers warehouse employees a one-time payment (starting at $1,000 and increasing yearly up to $5,000) to leave the company if they’re unhappy.
The catch? If they take the payout, they can never work for Amazon again. It's the company’s way of keeping only those employees who truly want to stay.
➡️ Key takeaways:
- The “Please Don’t Take This Offer” tagline doubles down on the company’s commitment to employee loyalty.
- The strategy ensures that those who stay are truly invested, boosting retention of engaged employees.
- Amazon gave employees an opportunity to reflect on their career goals by providing them a financial safety net to pursue other paths.
💡Bonus tip: Once employees start looking for the exit, it’s already too late. Show them you’re listening with the right stay interview questions.
3. Microsoft’s year-end spot bonuses
Spot bonuses are a powerful way to show your appreciation. Case in point: Microsoft. In February, the tech giant announced a special one-time cash bonus for all eligible employees, on top of their regular annual bonuses.
"As we move forward, I believe it is critical that we maintain our focus on you, our employees, and reward the exceptional work that has driven our record-breaking performance," CEO Satya Nadella shared in a company memo.
The spot bonuses ranged from 10% to 25% of the total value of the employees’ annual bonuses, reinforcing the idea that when the company wins – so do its people.
➡️ Key takeaways:
- The company-wide approach reinforces a culture of shared success.
- Bonuses were given in addition to regular compensation and annual bonuses.
- The timing aligned with Microsoft's strong market performance, including a $3 trillion market value milestone.
💡Bonus tip: Give new hires the tools they need to win. This new hire checklist makes it easy.
4. Gravity Payments’ bigger base salary
While many of the companies mentioned above offer spot bonuses to boost retention, Gravity Payments took a different approach. Their solution? Double down on employee well-being by raising the minimum salary to $70,000 for all employees.
"There was a little bit of concern amongst pontificators out there that people would squander any gains that they would have. And we've really seen the opposite," CEO Dan Price told the BBC.
Since the raise, employee retention has doubled, productivity has increased, and the company has seen significant growth. Rather than getting bogged down in bonus structures, this upfront investment in employee wellbeing not only kept workers happy and committed – it created a more stable, innovative workplace culture.
➡️ Key takeaways:
- Competitive salaries can boost retention without the constraints of bonus structures.
- Higher base pay creates long-term stability versus short-term incentives.
- Investing in employees' financial wellbeing leads to increased productivity and growth.
💡Bonus tip: Build a pay structure that scales as you do. Start with this guide to creating an employee compensation strategy for small and growing businesses.
The dos and don’ts of offering retention bonuses
Ready to design a retention bonus that actually works? Here are the essential dos and don'ts to get it right.
The dos:
- Do make sure the terms are clear. Clearly outline the financial terms and retention period, specifying the exact amount of time you need them to stick around for.
- Do give context. Why are you offering a retention bonus? Is the company looking for guaranteed support during a rough patch, or just looking to lock down top performers?
- Do focus on company culture as well as bonus payments. Offering unfair bonuses can make other employees more likely to leave.
The don’ts:
- Don’t wait until it’s too late. Offer retention bonuses early enough to give employees the incentive to stick around, or they might start looking elsewhere.
- Don’t use it as a band-aid for an unhealthy work environment. You also need to create a culture that keeps high-performing employees engaged. Think: flexible working hours, work-life balance, shorter or reduced days, remote working, and other elements of a robust benefits package.
- Don't reward toxic team members who damage team culture, even if they’re top performers.
Employee engagement goes beyond the retention package
The difference between effective retention pay and wasted cash often comes down to strategy. By setting clear guidelines, tying payouts to defined performance milestones, and keeping fairness top of mind – you can keep your employees loyal.
Want more tips for creating a culture employees never want to leave? Visit the Hire Learning blog for more expert resources and tips.
Top FAQs: Employee retention bonuses
Just here for the high points? Here’s a recap of some of the most common questions about employee retention bonuses.
What is an example of a retention bonus?
A retention bonus (or stay bonus) is a financial incentive designed to keep valuable employees during critical periods like a restructuring or important project. For example, a company might offer a senior developer a $50,000 bonus, paid in two installments over 18 months, to ensure they stay through an important product launch.
Common structures include:
- Lump-sum payments (like 15% of annual salary paid at the end of a set period of time)
- Stock options that vest over time
- Graduated payments that increase the longer an employee stays
- Additional benefits like extra PTO or flexible work arrangements
These bonuses are especially common during mergers, acquisitions, or major company transitions when maintaining key talent is crucial for business continuity.
How do I offer a retention bonus?
First, figure out which key employees you want to keep and decide on a bonus or perk that makes sense for their role and industry standards. Set clear rules – like how long they need to stay and when they’ll get paid – then put everything in writing so there’s no confusion.
Who is eligible for a retention bonus?
Retention bonuses are usually offered to important employees, especially during an organizational change like a merger or important project. They're typically given to people with skills that are hard to replace or who are critical to the company’s success.
How is the retention bonus calculated?
Retention bonuses are usually based on factors like the employee's role, salary, and how long they need to stay. It could be a fixed amount, a percentage of their salary, or a tiered program based on specific milestones.
What is a typical retention bonus amount?
A typical retention bonus can vary widely, but it’s often between 5% to 20% of an employee’s salary. In some cases, it could be a set amount like $1,000 to $10,000, depending on the employee's role and company goals.
