Learn What Retention Bonus Agreements Are and When to Use Them

A survey by WorldatWork recorded a general increase in retention bonuses in 2021, with 38% of organizations already using them. A stay bonus agreement is a percentage raise in compensation that a company pays an employee if they agree to stay for a defined period of time. A key employee retention agreement is a contract, including benefits or bonuses, set between key employees and their organization. A retention bonus is not the same as severance pay, but it provides a better compromise between shareholder interests. Retention agreements are not required by law, but companies offer them as proof of goodwill and to remain competitive in attracting the best talent.

Employers should use a retention bonus agreement if they foresee a stressful period for their organization and employees should negotiate a retention bonus offer to secure themselves in such scenarios. Employees should read the retention bonus agreement, consider both payment and duration, and ask their employer to explain vague terms like “sole discretion” and “actively employed.” Before accepting a retention bonus offer, employees must consider their current assessment of the company and their expectations of the current position. The most important details in this text are the reasons for rejecting a retention agreement, the motivation behind the offer, the taxation of the retention bonus, and how to write a retention bonus agreement. Retention bonuses are not tax-exempt and are subject to applicable withholding taxes, so it is important to assess the tax rate and method before accepting an agreement. Retention bonuses are eligible to employees after they sign an agreement with their employers, and they differ from annual salaries in that they are considered supplemental wages. Employees who stay for the period specified in the agreement are eligible for the retention bonus.