Signing bonuses are bullshit

Signing bonuses are bullshit. They masquerade as an incentive to join, but in actuality they are a guaranteed pay cut at best, and at worst a way to lock you in to staying at a job, or put you in a really bad financial spot if you need to leave earlier than expected.

Scenario

You’ve just finished the interview process for a new employer and they’ve given you an offer! Awesome! Congratulations! I knew you could do it!

Here’s the details of the offer:

  • Salary: $100000
  • Equity: 5000 options at $.50 strike price 4yr/1yr cliff
  • Signing Bonus: $5000

You think to yourself: “Wow! $5000 just to get started? I can pay off that bill I have laying around!”

But I’m here to tell you that you shouldn’t pay off that bill just yet, and that the signing bonus is not as great as it seems on the surface.

Why not?

Most signing bonuses aren’t just cash in your hand. If they were, people would start jobs, work for a day, and collect their signing bonus on their way out the door. Over and over and over again. So it makes sense that businesses will want to try to prevent that from happening.

A typical signing bonus has a 1 year vesting schedule, vesting daily. If you leave on day 36 of your employment, you need to return 329 days worth of your signing bonus to the company. Seems reasonable.

Except you just used that signing bonus to pay a bill. Oops. Guess you’re stuck at that job for 329 more days. Or now you have to take out a loan to pay your signing bonus back. Or … something. Not a situation I’d want to be in.

Additionally, depending on the wording of the signing bonus agreement, you might have to pay back the pre-tax amount, which means now you’re out the taxes that were withheld until April comes around again…

But what about…

If you’ve got a decent handle on your financial situation, one thing you could do is set that money aside, and only taking out / using the money that is “yours”. That’s a reasonable approach, to be sure. That’s what I do. And that’s what you should do, if you want to make sure you don’t get stuck in a bad situation regarding the signing bonus.

But let’s think about that for a minute. Say you give yourself 14 days worth of your signing bonus every 2 weeks, just to make the accounting easier. Maybe even on payday.

How is this any different from making $105000 instead of $100000 + $5000 signing bonus?

It’s not, really. And, if you want to be safe with your money, this is exactly how you should look at it.

But let’s think about that for a minute. Are you going to get another $5000 bonus at the end of your first year? The second? The third? The fourth? Is that going to be in addition to any sort of raise you might be eligible for? Probably not on all counts. And your raise will almost certainly be based on that $100000 base salary.

What a signing bonus actually is, is a guaranteed pay cut after your first year.

So, what do I do?

If your offer contains a signing bonus, try to negotiate it away. If they won’t, then maybe ask for a higher base salary anyways. Or just think of it as a pay cut. It’s not great, but it could be worse. Also, make sure to discuss this as part of raise negotiations in the future.

Do not be fooled into thinking that you asked for $105000 and they gave you $100000 + $5000 and it’s the same thing. It’s not. Your salary is $100000. That $5000 is not factored into anyone’s numbers but the IRS.

Don’t be fooled into thinking that you can go off and spend that money right out of the gate, unless you have a strong enough handle on your finances to be able to pay it back out of other places if you need to leave. Even then I would say don’t, because leaving the company costs you money. Maybe money that you had when you spent the signing bonus, but Shit Happened™ and now you don’t. If you pretend that money isn’t yours to begin with, you’ll be fine.

But mine is different!

Sure! I would love to hear about other signing bonus structures that people have encountered. Assuming they’re not just differences in the vesting schedule and term, unless the vesting is somehow non-linear over time. RSUs and other such equity things are also separate from this discussion, as you can’t sell those before you have vested them, meaning you can’t spend the proceeds until the money is really yours.

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