Pay (Be)fore Performance: The Signing Bonus as an Incentive Device

52 Pages Posted: 9 Mar 2008 Last revised: 7 Oct 2015

Edward Dickersin Van Wesep

University of Colorado at Boulder - Department of Finance

Date Written: February 18, 2010

Abstract

The signing bonus is one of the most common elements of compensation packages for white-collar employees but has received little theoretical and empirical attention. This paper investigates the use of a signing bonus as a tool for firms to signal to prospective employees: When they are uncertain regarding their fit with the firm, the signing bonus can serve as a credible signal of the firm's belief of said fit. The theory suggests that we should expect signing bonuses to be more common and larger when the economy is stronger, when employees are less certain of how well they will fit at the firm, when the quality of fit (known to the firm) is higher, and when performance pay is present. Employees receiving a signing bonus work harder, so the signing bonus also serves as an incentive device. This paper also presents the first broad empirical look at the use of the signing bonus across industries and time. Evidence is consistent with the theory.

Keywords: signing bonus, incentives, compensation

JEL Classification: D82, G30, J33, M52

Suggested Citation

Van Wesep, Edward Dickersin, Pay (Be)fore Performance: The Signing Bonus as an Incentive Device (February 18, 2010). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1102552 or http://dx.doi.org/10.2139/ssrn.1102552

Edward Dickersin Van Wesep (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

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