22 Mar How to Handle Proration of Employee Bonuses
Should new employees have their bonuses prorated? It depends, and here’s how you can tell.
We often receive questions about how to handle paying bonuses when hiring new employees. More specifically, our clients wonder if, how, and when bonuses should be prorated.
Many people in the wealth and investment management arena receive a significant portion of their bonus at the end of the year. When these professionals interview for a new position elsewhere, while the base pay and bonus target can be clear, often the proration of the bonus is not discussed.
Companies often prorate an employee’s bonus for the time when they aren’t employed. After all, they aren’t working there, so why pay them?
However, many professionals see it this way: If they’re leaving their position at any point of the year, they’re having to forfeit up to a year’s worth of bonuses that they earned. They understand they haven’t earned it yet at the new company, but they want a sign-on bonus or guaranteed minimum bonus to make up for the bonuses they’re leaving behind.
Typically, we see proration depends a lot on the time of the year. In the first quarter, many employees aren’t worried about proration since bonuses are still far off and they feel like they have plenty of time to hit the ground running. However, most employees are more concerned about bonuses toward the end of the year, and they aren’t likely to walk away from an imminent bonus without guarantees. If companies want to prorate employee bonuses, they’ll usually need to hold off on hiring until after a new year begins, or come up with additional funds.
The main takeaway is that you want to have an open discussion about the bonus, its timing, and its proration. Otherwise, you may find that each party has very different ideas about how much and when bonuses should be paid.
Leah Yosef International is the Private Wealth and Investment Management search division of Sanford Rose Associates, recognized by Executive Search Review as being one of the Top 10 Search Firms in North America with 90+ Offices worldwide. To learn more, please reach out to your Leah Yosef International executive search consultant today. Schedule A Consultation