Retention bonuses are a way to show employees that you care about their well-being. They’re an investment in your company’s future.

They show that a company is investing in the people who are working for it and that the company wants them to be around for a long time.

In this article, we will discuss retention bonuses, why it is important for organizations to adopt them, and how to set them up. Read on!

What Is a Retention Bonus?

A retention bonus is an incentive offered to employees to stay with the company. When you’re a human resources manager, you have a lot of power to dole out these bonuses. 

They can be used to motivate employees and keep them from leaving your organization for another job opportunity. Retention bonuses are particularly important for HR managers because they provide two main benefits: increasing employee loyalty and reducing turnover. 

A retention bonus is money given to employees who remain with the company for a set period of time. This can be in the form of salary increases or bonuses, but there are other options as well. 

For example, you could offer an incentive to stay at your company by offering free childcare or subsidized gym memberships. If you want your company’s employees to remain loyal and continue working for you, it’s crucial that you offer them some sort of reward when they sign on with your company. 


Why Are Retention Bonuses Important?

One reason why retention bonuses are important is that they help increase employee satisfaction and loyalty. When employees feel like they have been treated well and valued, they are more likely to stay with your organization than if they had not received such treatment. 

Another reason why retention bonuses are important is that it gives employees something concrete to hold onto in their job search process. It provides something that might make them want to find another position within the same company before moving on altogether.

Therefore they help reduce employee turnover rates. This means less training costs, less recruiting costs, and fewer new hires needed to fill open positions.


8 Reasons Why You May Use a Retention Bonus

  1. Prevent Poaching: A retention bonus is an incentive for employees to stay with your company.
  2. Retain Skills: Your retention bonus can help you retain employees by offering them a bonus for staying long-term. It helps ensure that the company has the right people on board and also incentivizes employees to stay with your organization for as long as possible.
  3. Stable Company’s Investment: If you’re in business, then any stable employee is a good thing, especially if they have knowledge and experience that could be useful to the company’s growth and expansion goals.
  4. Improve Company’s Negotiation when Hiring: Your retention bonus can help improve negotiation when hiring new employees because it shows them that their skills are valuable and necessary, which might encourage them to join your organization instead of another one that pays less or doesn’t offer benefits like health insurance or paid time off (PTO).
  5. Give Back to Your Employees: This is not just an altruistic act, it also makes sense from a business perspective because it gives employees a reason to stick around and work hard for the company’s long-term success.
  6. Encourage Referral: It encourages employees to refer others who they think would benefit from working at your firm due to the benefits of being part of an organization that offers its employees growth opportunities within the company or industry they work within as well as rewards based on performance (i.e., bonuses).
  7. To Increase Sales: It helps to increase sales and profits by motivating your employees with bonuses that are tied to performance targets.
  8. It is Cost Effective as it is a One-Off Payment: It is less money over a long term that costs lesser than increasing the base pay.


How To Set up Retention Bonuses in Your Company

Setting up retention bonuses in your company can be a little tricky, but it doesn’t have to be. Here are two ways to go about it:

  1. Aggregated Method: This is the easiest method of all. Just set the bonus at a certain number of points that you think are appropriate for the employee’s tenure with your company. For example, if you want to set a retention bonus of five points per year of service, simply define how long they’ve been with your company as well as their current performance and then award them five points per year of service.
  2. Percentage Method: You can also use this method if you want to give out bonuses based on an employee’s performance or contribution to business goals. It’s not quite as easy as setting up an aggregate bonus because you’ll need to calculate how much each employee contributes over time and then award them accordingly and this is usually calculated using 25%. This can take some time so make sure this method is something you’re comfortable with.


What Percentage Should Be Used For The Retention Bonus?

The retention bonus is a great way to keep your employees engaged and happy at work. The trick is figuring out how much money you should give them, and what percentage of their salary it should be.

The standard is between 10% to 25% but a tax rate of 39.6% would apply for any amount over a million dollars. If you’re in that situation, I would recommend using a sliding scale based on employee performance ratings. 

You can also consider giving bonuses for certain goals, like hitting a certain number of sales or meeting a given customer satisfaction score. Here is a list of things to consider before setting the percentage.

  • Company’s financial situation 
  • The employee’s role
  • The employee’s base salary
  • The length of service of the employee in the company
  • How much money does the company have available for a retention bonus?
  • What impact will the departure of the employee have on the business?


What Does The Company Need To Include in The Retention Bonus Agreement?

As an HR Manager, you may be wondering what your company needs to include in the retention bonus agreement.

Here’s the scoop:

  1. Holders of the agreement should specify how long the bonuses will be paid for and how much they will be worth.
  2. At what value will the bonus be offered? Many companies prefer to pay bonuses in cash rather than stock options or other forms of compensation; however, if this is not possible then you should determine whether or not tax liabilities will apply.
  3. Decisions should be made on which mode of delivery will work best for your company and its employees: by check or by direct deposit? If possible and appropriate, consider offering both options so that both parties have flexibility in how they choose to receive payment.
  4. The timeframe for when the bonus would be paid should be stated in clear terms. If you wanted to hold off on paying any bonuses until after the employee has been with your company for six months, then you could also state this on your retention bonus agreement so that there is no confusion about which payment schedule you are using or whether or not there are any conditions attached to when payments are made.
  5. If an employee is eligible for multiple bonuses during their tenure with your company, then make sure those bonuses are applied cumulatively. Meaning that all of them would apply at once even if one employee was already getting payments for another type of bonus).


How Formplus Can Help With HR Managers’ Retention Management

If you’re a manager of HR, you know that retention is crucial to your success. But it can be a tricky thing to manage especially if you’re not in the habit of tracking employee data.

That’s where Formplus comes in: Formplus software has been designed to help with all kinds of HR management tasks.

Formplus makes the process of collecting employee data easy, so you can focus on what’s important: making sure your employees are being treated right.

With Formplus, you can create forms for employee data collection, share them through emails or platforms of your choice, and manage employee data as well so that you are always in the loop with how your employees are doing.


Get Started With Free Templates for your HR Management [Start Here]



The main purpose of a retention bonus is to keep talent within your organization to ensure you have the right people fulfilling key roles in your business. You may also use it as an incentive to prevent poaching of your employees by other companies which could have potentially damaging effects on the stability of your company’s investment and its ability to negotiate when hiring new talent.


Whatever reasons you have for introducing retention bonuses, as long as it keeps the employees happy and the company growing, keep at it.

  • Olayemi Jemimah Aransiola
  • on 7 min read


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