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Retention bonuses are a form of financial incentive utilized by many different businesses. The bonus is usually issued to key employees as a strategy to motivate the individual to remain in the employ of the company. A retention bonus is usually extended when circumstances indicate the employee may be considering resignation, an action that will result in an undesirable loss to the ability of the business to function at optimum levels.
The retention bonus is an incentive that is offered above any beyond any other salary, wage, or other benefits currently extended to the employee via his or her compensation package. Considered a one-time transaction, the bonus is often a show of appreciation for the talents and expertise that the employee provides to the employer. In turn, it is hoped that the employee will reconsider any other employment options that may have come about and stay with the employer for at least a little longer.
It is not unusual for a retention bonus to be issued to key employees when a business is going through some type of major change, such as a merger or acquisition situation. The idea is to entice the employee to remain in his or her position at least until the current set of circumstances has been resolved. Since increasing salaries or issuing other types of permanent benefits may not be feasible during a period of transition, the bonus allows employers to retain employees at least until the acquisition or other major shift is complete.
Since this bonus is given freely, there are no contractual obligations that an employee must agree to in order to receive the bonus. However, acceptance of the bonus is considered a tacit agreement to remain in the current position at least temporarily. Businesses tend to issue the bonuses with the hope that the extra incentive will compensate the valuable employee for any discomfort or inconvenience that is resulting from the current set of circumstances, and retain his or her services for later times when the crisis has passed.
Just as there is no contractual obligation on the part of the employee to remain after accepting a retention bonus, the issuing of the bonus does not in any way commit the employer to any long-term guarantee of employment for the individual. For example, if the bonus were issued while a company was fighting off a hostile takeover attempt, the employee may still be terminated if new management assumes control of the company without violating any terms of employment that were put in place by the former management.
For this reason, employees may choose to evaluate the situation carefully, especially in terms of continued employment after the acquisition is complete. They may choose to accept the retention bonus while understanding that employment is only likely to continue until the takeover is successful, and will proceed with seeking out career opportunities elsewhere.