Signing Bonuses in a Tight Labor Market. A Better Way?

I was meeting with a prospect last week and we were discussing his business and the current challenges of finding good talent.  The business requires a number of technology savvy folks, although the actual business is not a “tech business” per se.  Indianapolis has in recent years become a bit of tech hub as SalesForce has expanded here and is now one of the larger employers in the area.  Suffice to say that if you are a young technology person, the idea of working for SalesForce or any one of the many start-up tech companies has a slightly greater appeal than working with my prospect.

We discussed ways in which we could address my prospect’s challenges, and one of the options that he has used in the past, and continues to use now, includes signing bonuses for the right talent.  These bonuses are not six figure bonuses, of course, but they are generally several thousand dollars.  He feels he needs to continue to strategically use these bonuses to compete against the more tech centric competition in town.  However, one of the problems with these bonuses has been that employees that do come on board often don’t stay very long.  Many move on after a year or two, which is obviously frustrating.  Is there a better way, he asked?  Well of course there is!

I mentioned to him that he could continue to keep signing bonuses part of his offering for key employees but instead of paying them out in cash, he could put them into the retirement plan and make them subject to a 5 or 6 year vesting schedule.  He was surprised to hear that he could do that as he thought this might be discriminatory when in fact it is perfectly legit.  Moreover, by putting these bonuses into the plan and making them subject to a vesting schedule, he and the employee avoid paying taxes on these contributions. He can even make the bonuses more generous because if the employees leave before fully vested, he can repurpose those forfeited dollars for other employees.

Was my prospect happy about this idea?  Naturally he was.  Is he a client yet?  Not quite, but things are looking positive.  If you are an employer looking to partner with an advisor who can think outside the box to help you with a business problem, give me a call.  I would love to have a discussion!
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Pete Welsh a/k/a 401kGuy