Similar to what we discussed in the August issue (‘Staff discounts’), another method used by employers to keep their staff in their employment is retention bonuses. This is a substantially bigger monetary amount than staff discounts and can sometimes contribute significantly to your wealth creation, but the principle of how they should be viewed should be treated in much the same way as those staff discounts.
Another earlier article I have written on bonuses (December 2015) stressed the importance of not ‘banking’ on these bonuses: that is, do not spend them before you receive them. Retention bonuses are exactly the same. As mentioned, they can generally be a sizeable amount of cash, so it’s difficult not to think about said bonus when making decisions, but how did you make those same financial decisions before you earned bonuses? The principle I am trying to make is to not let short-term remuneration drive long-term decision-making.
Now, these arguments I have been making might sound like I am insinuating that you should be considering your employment options on a regular basis. This is not the case. If you are happy in your job, are fairly remunerated and there is a clear career path set out for you (or whatever other factors are important to you in a work situation), enjoy all the benefits and retention bonuses that you get.
This isn’t a licence to be foolish about such gratuitous income (not to say you did not work hard for it), just saying that you are allowed to enjoy good fortune when it comes your way. However, I have come across too many people that are unhappy in their jobs, some of whom even had other opportunities come across their path to move elsewhere, but did not … because they were going to receive a retention bonus in a year’s time!
Where employers get particularly clever is where they pay out your retention bonuses and tell you that if you leave within X years, you need to pay it back. This requires extra self-control to not let it influence your decision-making. What I mean by this is that you should try not to spend this money until X years is over, just in case. You do not want that potential debt hanging over your head if the opportunity to move somewhere else presents itself. Invest the money and leave it. It’s the accrual concept once again … have you earned that money yet?
Even more difficult is where that payout covers a course or further studies that are happening now. Now you really are stuck, aren’t you? Well, not necessarily – just be aware of it.
Retention bonuses are meant to be structured in such a way that they influence you to stay in the company’s employment. That’s where they get their name from. But then, rightfully so, you should also view them as such – that is, schemes to keep you. Therefore, when making career decisions, while the remuneration you receive often plays a big part, do not let the other ‘benefits’ influence you too much. Make your decisions objectively. Think long term without being caught up in what is owed to you now.
Please note that the author of this article is not a certified financial advisor in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Accountancy SA and the author cannot be held liable for any loss (including indirect and consequential loss) arising from your reliance on the opinions given in this article. Should you nevertheless elect to rely on this article, you do so at your own risk and agree to indemnify Accountancy SA and the author from any loss or damage that you may suffer as a result.
Author: Gizelle Willows CA(SA) MCom Finance is Senior Lecturer in Financial Reporting at the University of Cape Town