Big Tech negotiation
A quick overview of sign-on bonuses and how they work (with a focus on Big Tech)
by Josh Doody
Definition: A sign-on bonus is a lump-sum cash payment given to a new employee when they begin working for a new company.
Sign-on bonuses are used as an additional incentive to convince a valued candidate to join a company. They are sometimes included in an initial offer, but are usually reserved as a bargaining chip to persuade candidates who are on the fence to sign their offer letter.
Learn more Learn how Big Tech companies structure their job offers
There is no typical sign-on bonus per se. Sign-on bonuses can vary from a few thousand dollars up into six figures.
An entry-level Software Engineer may get a sign-on bonus of $5,000 or so, while an Executive or Senior Leader at a Big Tech company may get a sign-on bonus of $100,000 or more.
For companies, a sign-on bonus is an easy way to entice a desired candidate to join the team with up-front cash.
Salary, equity, performance bonuses and other forms of payment will generally account for the bulk of an employee’s compensation, but all of those things are usually paid out over time. Salary is paid paycheck to paycheck, equity usually vests over years, and performance bonuses are not guaranteed, usually take at least a year to earn, and can vary quite a bit depending on how the company itself is doing.
For candidates, a sign-on bonus is paid out up front, in cash, so they can be a nice cash infusion for the employee as they wait to realize those other forms of payment.
This will often help them cover income lost during their job transition (if they take a break between roles, for example), make up for compensation forfeited when they left their previous role (unvested equity, unrealized bonus payouts, etc.), and help cover move-related expenses that may exceed their relocation bonus (if there is one).
Amazon merits its own section here because their use of sign-on bonuses is extremely unusual.
Amazon’s job offers pretty much all have sign-on bonuses (yes, plural) built in: Year 1 and Year 2.
The reason for this is that their equity vesting schedule is “back heavy”, meaning most of the equity grant will vest in Year 3 and Year 4. So 80% of the equity grant in a typical Amazon job offer will vest in Years 3 and 4. That leaves only 20% vesting in Years 1 and 2.
Here is what Amazon’s equity vesting schedule looks like:
| Year | Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|---|
| Vest Amount | 5% | 15% | 40% | 40% |
So without sign-on bonuses, a candidate will have to consider a job offer that pays far less in Years 1 and 2 than it does in Years 3 and 4. In order to smooth out the four-year total compensation number, Amazon includes sign-on bonuses.
See below for an example.
Learn more Learn more about Amazon job offers
Amazon salary negotiation - How to negotiate your Amazon job offer
Here are a couple of examples to demonstrate how sign-on bonuses can be incorporated into a job offer.
Let’s start by looking at a baseline example of a typical Big Tech job offer. Here’s an example taken from a modified version of a real Big Tech job offer from one of my clients. This client was a very experienced software developer with substantial background in embedded systems. This offer is for $210,000 base salary, $400,000 total equity (vesting over four years), and a $30,000 sign-on bonus.
| Component | Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|---|
| Base Salary | $210k | $210k | $210k | $210k | |
| Sign-on | $30k | ||||
| Total Cash | $240k | $210k | $210k | $210k | |
| Equity | $100k | $100k | $100k | $100k | |
| Total | $340 | $310k | $310k | $310k |
And here’s an example of an Amazon job offer, showing how they use large sign-on bonuses to target a total compensation number in the first two years during the early part of the equity vesting schedule (when equity vests at 5% in Year 1 and 15% in Year 2).
| Component | Year 1 | Year 2 | Year 3 | Year 4 | Total | |
|---|---|---|---|---|---|---|
| Base Salary | $145k | $145k | $145k | $145k | $580k | |
| Sign-on | $30k | $20k | $50k | |||
| Total Cash | $175k | $165k | $145k | $145k | $630k | |
| Equity (RSUs) Vesting | 5% | 15% | 40% | 40% | 100% | |
| Equity (RSUs) | 50 | 150 | 400 | 400 | 1,000 | |
| Equity (RSUs) Value* | $5k | $15k | $40k | $40k | $100k | |
| Total | $180k | $180k | $185k | $185k | $730k |
There are two sign-on bonuses. The $30,000 Year 1 sign-on bonus will be paid out when they begin working for Amazon, and the $20,000 Year 2 sign-on bonus will be paid out when they begin their second year at Amazon.
There will often be a pro-rated clawback (see below for more on clawbacks) each year, so if the employee leaves before the end of Year 1, they may be asked to pay back the prorated remainder of their Year 1 sign-on bonus. Similarly, if they leave during Year 2, they may be asked to repay the remainder of their Year 2 sign-on bonus (but they will keep their Year 1 sign-on bonus since they completed that year).
Sign-on bonuses are often paid up front as cash, usually included on the employee’s first paycheck. That is a nice benefit, but it comes with a risk: If the employee leaves the company before the end of their first year, the sign-on bonus may be subject to a “clawback” clause in the employment agreement.
A sign-on bonus “clawback” is when the company demands repayment of either the entire sign-on bonus (rare) or repayment of the sign-on bonus prorated for their time with the company (more common). So if the employee was paid a Year 1 sign-on bonus up front, but leaves after only six months with the company, they may be asked to repay half of their sign-on bonus since they only worked for six of the 12 months in the year in which they were given the sign-on bonus.
This is usually done by deducting the clawback amount from their final paycheck, but the employee may also be required to pay the company directly in some cases.
Sometimes, a sign-on bonus will be paid out over time rather than as a lump sum up front. This could be quarterly, or even prorated so that a portion of the sign-on bonus is paid out with each paycheck.
Make sure you read your employment agreement very carefully, especially looking for information on how your sign-on bonus will be paid out and for information on what happens if you separate from the company before the period covered by the sign-on bonus.
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