A retention bonus is a financial incentive offered to a valuable employee to keep them on the job during a particularly crucial business cycle. It is a targeted payment or reward outside of an employees regular salary that is offered as an incentive to keep a key employee on the job during a disruptive period of organizational change, to preserve company-specific information during a project, or to retain technically-specific information that may be more difficult to replace. Retention bonuses are typically a one-time payment made to an employee, and they are often paid as a lump sum on a specified date agreed to by both the employee and the company. Companies usually prefer to offer a retention bonus instead of a salary increase because they may not have the necessary finances in place to commit to a permanent salary raise. Retention bonuses may also be structured where the employee receives small portions over time.

Retention bonuses are often given out during transitional times within a business, such as organization-wide changes or a merger and acquisition. They are used to reduce overall turnover, minimize disruptions within the organization, and reduce the costs of rehiring campaigns. Retention bonuses are additional incentive payments used to entice an employee to remain with the company. They are not intended to be offered to an entire group of employees in a job profile, and employees will not be eligible for a retention payment if they have received a retention incentive within the previous 24 months.

Retention bonuses are often offered to employees who are in a key role and who have shown outstanding performance. They can be useful in certain cases, for example, to encourage employees to stay through a merger or acquisition or through the completion of a key enterprise project. However, there are some risks to be aware of when offering retention bonuses. There’s no evidence they increase engagement or long-term loyalty, and they may move the employee/employer relationship away from the ideal partnership state and towards the transactional. Therefore, retention bonuses should be used sparingly and with caution.