On the surface, sign-on bonuses seem straightforward. Businesses offer special pay outside of the regular salary to tempt new hires, and job seekers get a boost in pay at the start of a new position. Sign-on bonuses are now offered for every veterinary position, and have become a normal part of the hiring process. In reality, however, they can be far more complicated, leading to trade-offs in pay, short tempers, and misunderstandings.
Considerations for veterinary practices
A sign-on bonus can make your practice’s offer more competitive in the current challenging job market. It can also bridge the gap between a candidate’s salary requirement and what your practice can afford long-term. Additionally, sign-on bonuses are popular because they are classified differently than salary pay in accounting terms. The one-time payment structure will make the practice look more profitable on paper.
If a candidate is considering two equivalent positions, it could make the difference—or you may find yourself in a bidding war with another practice.
Bonuses in excess of $100,000 are not unheard of for associate veterinarian positions, but few practices have that much cash readily available. The more realistic scenario is that the bonus is paid out incrementally over time, making it a retention bonus rather than a sign-on bonus. If this is how you will structure the bonus, it is best to be upfront about the payout schedule, because poorly written or misunderstood contracts can lead to dissatisfaction and friction. Attempting to “hide” unpleasant details in the fine print won’t endear you to your new team member or create a lasting professional relationship. And, it is worth keeping in mind that other team members may feel slighted when they learn a new hire received a bonus they were not offered. Additionally, you should consider whether the new team member will work at a level to justify the amount of cash the practice invests in them.
There is growing evidence that workers who are lured in by a retention bonus are more likely to be lured out by one, as they chase the next big payoff. Ensure you seek legal advice to protect yourself in case your new hire grabs the cash and dashes at the first opportunity. However, if your practice is already a preferred employer with a great culture, and is competitive in every other way, is a large sign-on bonus attracting highly desirable employees? Could offering a healthy, supportive workplace, and using those funds for better long-term compensation be a more sustainable alternative to a bonus on a big hook?
If you do choose to offer a “bonus,” whether it is given in the form of a forgiven loan, a one-time payment, or retention payments over years, consult an accountant or tax professional regarding the tax ramifications, so you are not in for a nasty surprise come tax time.
Considerations for job seekers
Sign-on bonuses seem like an amazing deal. Sign on the line and receive a large payout—it’s like winning the lottery! But, not so fast. Always read the fine print to ensure your nest egg doesn’t turn into a rotten egg. Details to consider include:
- Who will pay the taxes? — Like winning the lottery, taxes must be paid on the funds. Clarify who will be responsible for the taxes, because the end payout may be far less than anticipated if you are picking up the tax bill.
- When will you receive the bonus? — Clarify whether you will receive a one-time payment, or the payments will be spread over years, to encourage retention.
- Will the bonus impact long-term salary? — Determine whether the practice is offering a lower salary in exchange for a one-time bonus to entice candidates to apply. You may find yourself unhappy with your future compensation, because once the bonus is paid out, you may make less than when you were hired.
- What happens if you leave before the end of the contract period? — Some practices add a “clawback” clause requiring you to pay back some or all of the bonus—or worse, the total amount including taxes. If the practice writes the bonus in the form of a loan that is forgiven at the end of a set time period, it will be easier for them to legally recover the money in the case of an early contract departure. Be aware that breaking your contract may leave you with an outstanding loan balance!
Before signing a contract that includes a sign-on bonus, always consult legal and accounting counsel to save yourself headaches—and heartaches—later. If you find the terms uncomfortable, try bringing a counteroffer to the table, or—as a last resort—walk away.
Although sign-on bonuses may sound like the perfect solution for practices to attract and retain talent, and a boost in pay for job seekers, they could be a means for less-than-healthy practices to lure in new team members. Employers and job seekers should enter the agreement fully informed so they understand the terms and conditions before signing the contract. Ensuring there are no misunderstandings up front goes a long way toward creating a mutually beneficial long-term relationship.
Inspire Veterinary Partners focuses on fostering healthy relationships between new team members and leadership teams, and on ensuring all parties enter the relationship fully informed. If you are interested in joining a team that prioritizes honesty, integrity, and transparency in everything we do, contact Inspire Veterinary Partners to learn more.
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