How to Craft a Retention Bonus Statement
Oct. 15, 2019, 11:58 p.m.
What is Retention Bonus
Retention bonuses are payments above and beyond the employee’s regular salary or other variable pay opportunities. These types of bonuses are typically tied to a specific project or a time and if done properly, can be an excellent tool to retain high performers in critical roles. Ideally, retention bonuses are provided proactively, and not as part of a counteroffer, where golden handcuffs may not drive performance and tenure as effectively.
The messaging of the retention bonuses is always important, and here are a few recommended items to ensure you include when drafting these letters:
Retention bonuses are good news for the employee, so why not share the excitement with the employee? Your congratulatory statement doesn't have to be a long, drawn out one - but something as simple as: "Congratulations! I am pleased to inform you that you are receiving a one-time retention bonus in the amount of $10,000!"
Emphasize the Employee's Value
Who doesn't like hearing how great they are?! Recognition and acknowledgment are key motivators for employees and a retention bonus letter provides a natural opportunity to reinforce the employee's value to the Organization. This statement should, ideally, be specific to the employee's past and/or future contributions. A statement as simple as: “You are a key part of Acme Widget Co’s ability to meet one of our most important goals this year: expanding into the LATAM market. Your exceptional performance and commitment to Acme Widgets is critical in meeting our expansion goals.”
Well... Of course, we have to tell the employee how much they're going to receive in the retention bonus letter. Depending on how the retention bonus is structured, you may include the amount(s) and the payout dates, as well as the total. A sentence like, "In recognition of your future contributions, you are being awarded a one-time lump sum cash bonus in the amount of $10,000, less applicable taxes and withholdings, to be paid out on the first pay date after October 1, 2020.”
While the terms and conditions are never the most fun part to read, they are necessary to clearly articulate the conditions that must be satisfied for an employee to receive their retention bonus. You should check with your own legal counsel and local laws, but at a high level, including commentary helps to set expectations for the employee. An example may include language such as: “This retention payout will be made provided you remain an active employee, in good-standing, on the payout date.”
Future Facing Message of Thanks
Finally, after you’ve thanked the employee for their contributions (past and future), discussed the amount and the conditions necessary for the payout, it is important to close the letter reemphasizing the value they bring the Organization and why their continued employment is valued by the business. Something like this: “This retention bonus is an acknowledgement of the value you continue to bring to the organization. I look forward to your future contributions and shared successes as we work toward meeting our lofty goals in 2020.”
Other Points to Consider
Some points to consider when drafting a retention bonus letter include: whether or not you’re the retention bonus includes a performance component, if the grants are staggered, are they paid in equal amounts, or are they end-loaded, if the employee must be active (not on leave), and whether you pay a percent of the employee’s salary or a flat dollar amount, if the amount is grossed up to cover applicable taxes.