Retention Bonus mathematics

Submitted by don_ram86 t3_1276u5c in personalfinance

Help me understand how to think about a retionsion bonus, if you think you are being paid a market wage, how much would a bonus need to be to pass up another market offer?

This is a situation I've found myself in a couple times in my professional career, I didn't know how to hand it mathematical, so I'm seeking help.

If your offered a bonus to stay eight months and it's worth 20% of your annual salary how much does an offer need to be to accept it??

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MarcableFluke t1_jecvujn wrote

>If your offered a bonus to stay eight months and it's worth 20% of your annual salary how much does an offer need to be to accept it??

Well, technically speaking:

8/12 * 20% = 13.33%.

But that only works if you can get the same 20% 8 months from now.

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don_ram86 OP t1_jecwfcd wrote

Their has to be a way to account for how long it takes to aquire a new position. Vs a retention Bonus. .... are you saying at 8month from your Bonus you would accept 113% of your salary to take a new position and forfeit the bonus?

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MarcableFluke t1_jecwq5e wrote

No. What I'm saying is if you started at the new position today at 113% of your salary, it would take 8 months to break even on the retention bonus.

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don_ram86 OP t1_jecx95u wrote

So how much would the offer have to be to accept it and forego the bonus?

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MarcableFluke t1_jecxs3p wrote

Depends on how long you expect it would be for you to get a similar offer.

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don_ram86 OP t1_jecyav0 wrote

I've been all over the place. 6months, 11months, 2x zero (I accepted an offer while a retention Bonus was on the table) that's been my personal history. I have no idea how that compares to an industry average.

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MarcableFluke t1_jecyl0i wrote

Then I have no idea how much the salary would need to be to offset the retention bonus. You're asking about a mathematical calculation and can't provide all of the terms to make that calculation.

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don_ram86 OP t1_jeczkkk wrote

Does the absolute amount matter?

If it does. Call it 100k salary with a 20k bonus for staying 8months ... what offer would it take today to forfeit that bonus?

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MarcableFluke t1_jed04jc wrote

Again, it depends on how long until you expect to receive a similar offer. You're trying to solve a mathematical equation without filling in all of the variables.

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don_ram86 OP t1_jed10ik wrote

Lamo.... I provided my personal experience. It has been 4.25month which is my personal experience in job searches... but i have no idea if this 'normal' since the first was 6m in '08 ... 11months in '11 and 0 months in '14 & '15....

So I'm trending down... but I have no idea what is expected in the current environment.. that's why I am asking.

Thanks!!

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