What is a retention bonus?

A retention bonus is a financial incentive offered to an employee to encourage them to stay with a company for a specified period. It's often used during critical times, such as a merger, acquisition, restructuring, or a period of significant change within the organization.

Here's a breakdown of key aspects:

• Purpose: The primary purpose of a retention%20bonus is to retain valuable employees, especially those with critical skills or knowledge, during uncertain or challenging periods. This helps maintain business continuity and minimizes disruption.

• Structure: A retention bonus typically involves a one-time payment, often a percentage of the employee's salary, that is paid out after the employee remains with the company for the agreed-upon duration. Sometimes the bonus is paid in installments. The specific terms, including the amount, payment schedule, and conditions, are outlined in a retention%20agreement.

• Taxation: Retention bonuses are considered taxable income and are subject to applicable federal, state, and local taxes. Employees should be aware of the tax%20implications when considering a retention bonus offer.

• Eligibility: Eligibility for a retention bonus is typically determined by the employer and is often based on factors such as the employee's role, performance, skills, and the importance of their contribution to the organization. It's important to understand the eligibility%20criteria for the bonus.

• Clawback Provisions: Some retention bonus agreements include clawback%20provisions, which require the employee to repay a portion or all of the bonus if they leave the company before the agreed-upon period ends.

• Negotiation: While the terms of a retention bonus are usually set by the employer, employees may have some room for negotiation, especially if they possess highly sought-after skills.