Definition
Retention Bonus
A retention bonus is an incentive paid to keep an employee from leaving, typically conditional on staying for a defined period, and is fully taxable as salary.
A retention bonus is offered to persuade a valued employee to remain, often during a critical project, transition or acquisition. Payment is usually tied to continued employment through a set date, and may be paid upfront with a clawback or at the end of the retention period.
It is taxable as salary when received, with TDS. If structured with a clawback, leaving early can require repayment, mirroring the complications of a sign-on bonus.
When weighing a retention bonus, assess whether the stay-back commitment aligns with your plans and consider the after-tax amount you will actually keep.
Related terms
- Sign-on BonusA sign-on (joining) bonus is a one-time payment offered to attract a new employee, often with a clawback clause requiring repayment if you leave within a minimum period.
- Variable PayVariable pay is the part of your compensation linked to performance — individual, team or company — that is not guaranteed and can range from zero to the full target amount.
- Full and Final SettlementFull and final settlement (F&F) is the process of clearing all dues between employer and employee when employment ends, netting off salary, benefits and recoveries.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.