Gulf News, March 20, 2010
21 March 2010
Gulf News: "Signing Bonus at Cost of Lower Salary?"
Q. I am about to complete a college course in Dubai. I have secured a new job and am in the process of negotiating my employment contract. The company wants to give me a signing bonus but says that it will be at the cost of a lower-base salary. I already have three years of work experience. From a financial perspective, what should I do – take the ‘golden hello’ or hold-out of the higher salary?
In the current economic climate you have done well to secure yourself a job before you have even graduated from college, and I am sure your work experience served you well in obtaining the position. However, you are now being asked to fore-go a higher rate salary for a ‘golden hello’ and wisely want to know the advantages and disadvantages of this proposition.
Signing bonuses or ‘golden hellos’ are often given as a way of making a compensation package more attractive to a new employee. It also lowers the risk to the company when hiring new people, as a one-off payment saves the company from being committed to a higher salary if the employee does not meet expectations.
Employers of graduates going into sales roles or commission based jobs often prefer to reward new recruits in this way because they are aware that the first few months of such a role can be financially difficult – until the new hire has had enough time to build up their own clients and bring in some business.
This can be a good idea and a beneficial way to start your career. It lessens the likelihood that you need to use your own savings, take out a bank loan, or sign up for a credit card to be able to live while you find your feet in your new job.
A lump sum such as this could help you clear debts incurred during your studies, be used as a deposit for rent on an apartment near your new place of work, or as a down payment on a car which you may need to carry out your new job.
But, this is not money for nothing, and although the lure of a lump sum can be hard to resist, you must remember that it is coming off your expected salary, leaving you with a a lower monthly sum for the remainder of your stay at the company.
It may in fact be wiser, if you are able to remain financially stable in the first few months of your new job, to waive the signing bonus. If the signing bonus dramatically reduces your salary then foregoing the bonus for the higher salary figure will assist you in planning for a more secure financial future for you and your family.
The fact that you already have three years of work experience should give your new employer more confidence in your abilities to do the job than someone fresh from the education system. It is also important for you to consider that the lower your starting salary, the harder it will be rise up the salary scale when it comes to negotiating future pay rises, either through promotion or when you move to a new company.
The extra money you take home each month can be invested for further financial security, such as in a pension plan, life insurance, or for your children’s education. An independent financial advisor will be able to assist you in how best to save or invest this money, depending on your own specific circumstances.
Gurnos Stonuary
Business Development Director
Nexus Insurance Brokers LLC www.nexusadvice.com