To determine whether you should offer a sign-on bonus, first you must understand when it’s truly a good bargaining chip.

"The sign-on award is used as a negotiating tactic," Chuck Csizmar told us in a recent BLR webinar. "Typically it’s suggested by the recruiter, concurred with by the hiring manager, and finally [agreed] with the approval, acceptance, or simple acknowledgement of human resources." However, sign-on bonus awards are not universal, and are not appropriate in all circumstances.

"Where it is used, the tactic is to use it like wallpaper – to cover over the cracks in the employment offer." Csizmar explained. In these cases, typically the situation is that the original offer is not everything the candidate would like to have, so the sign-on bonus is offered as an enticement in lieu of addressing the other issues. Here are some common scenarios that might cause an employer to consider providing a sign-on bonus:

• When the offered salary is significantly less than desired. If the salary expectation is beyond even the range expected during negotiations, and the company cannot offer a higher base, then a sign-on bonus may become an active consideration.
• When a candidate is not eligible for merit increase. For example, if you’re hoping to hire a candidate that has not yet received a performance review (read: raise) for the year at their current organization, and also won’t be eligible for a raise in your company for a year, that person is faced with the possibility of 2 years without the opportunity for a raise. In that case, it may be appropriate to acknowledge that the candidate may be leaving money on the table (by leaving the current employer before performance review time) and allow them to recoup the perceived loss by offering a sign-on bonus.
• When some benefit or perk is not offered. The higher the rank, typically the more differing elements that are included as part of the overall compensation and benefit package. As such, there’s a greater likelihood that the new organization just can’t match every component of the previous organization’s pay and benefit package.
  "When there’s something that you simply can’t provide to the candidate – because of precedent, because of internal equity, because of tax implications, or you just don’t want to – the best way to say no is have something else positive to offer." Csizmar explained.
• When program eligibility is lost. For example, perhaps if a candidate leaves their current organization, they may forfeit all or part of this year’s bonus. Perhaps they lose the opportunity for vesting in stock options. You could opt to delay hiring this person to allow them to receive these entitlements, or you could opt to offset the loss with a sign-on bonus instead.
• When candidate acceptance is critical. "For our last scenario, we’ll throw logic right out the window," Csizmar noted. "Sometimes you find yourself in a situation where you have to have this candidate and you’ll do whatever it takes to gain their acceptance. Maybe the candidate would fill a critical position that can’t stay open any longer. Operations is suffering because of an empty chair – so this candidate has to be the one." There could also be a situation where there are not currently other candidate options, or someone high in the organization is pushing to ensure this candidate comes on board.

These are the common scenarios that surround the use of this negotiating card. But is it a good idea for your candidate? To answer the question, always make sure that it is only on offer when it is the best negotiation tool for the situation.

For more information on sign-on bonuses, order the webinar recording of "Signing Bonuses: When and How to Use Incentive-Based Recruiting to Secure Top Talent." To register for a future webinar, visit http://catalog.blr.com/audio.

Chuck Csizmar is a Global Compensation Consultant and the founder and principal of CMC Compensation Group, a professional services provider specializing in analytic, project management, and consultative services for US and international clients.