Welcome Bonus and Guaranteed Bonus: How to Negotiate Your New Role
When an executive or senior executive moves to a new company, negotiations naturally focus on what they will earn: fixed salary, variable compensation, management package, free shares, BSPCEs or stock options.
But there is another question worth asking before signing:
What are you giving up by leaving your current employer?
An accrued or pending bonus, unvested shares, profit-sharing entitlements or even the financial consequences of your notice period: changing companies can come at an immediate cost.
A welcome bonus, also known as a signing bonus or sign-on bonus, can be negotiated to compensate for some of the remuneration you are giving up when leaving your current employer.
A guaranteed bonus addresses a different risk: uncertainty surrounding your variable compensation during your first year with the new company.
The two mechanisms are therefore complementary: the welcome bonus looks at what you are leaving behind; the guaranteed bonus helps secure part of what lies ahead.
What is a welcome bonus?
A welcome bonus is a payment made to an employee when they join a company. When recruiting an executive or senior executive, it may notably be used to compensate for remuneration or benefits that the employee gives up by leaving their previous employer.
It should therefore not necessarily be viewed as simply a “joining bonus”.
To determine the amount to negotiate, the first step is to identify precisely what you stand to lose by changing companies.
Bonus or variable compensation you are giving up
Leaving during the financial year may have consequences for your variable compensation.
Depending on the applicable provisions, the timing of your departure and the terms of your employment contract or bonus plan, part of your expected bonus may be lost or become a matter of dispute.
Before negotiating your new role, it is therefore useful to identify:
- your target variable compensation;
- your usual level of target achievement;
- the portion of the year already worked;
- the conditions governing payment of the bonus.
The aim is to quantify as accurately as possible the potential loss resulting from the change of employer.
Unvested free shares, stock options or BSPCEs
The financial impact can be significantly greater when your remuneration includes an equity component.
Free shares, stock options, BSPCEs, LTIPs or other equity incentive arrangements may be subject to a vesting schedule.
Leaving before a particular vesting date may therefore result in the loss of some or all of your unvested rights.
Each tranche should be reviewed separately, taking into account:
the vesting date, the number of securities concerned, the terms of the plan and their potential value.
For some executives and senior executives, these elements may represent a significant part of the actual financial cost of changing companies.
Your notice period
Your notice period should also be taken into account.
If your new employer wants you to start quickly, you may need to negotiate a shorter notice period or a waiver with your current employer.
Conversely, a long notice period may delay your start date and, with it, the date on which certain rights begin to accrue with your new employer.
The timing of your departure and arrival should therefore form an integral part of the negotiation.
Other elements to consider
Other elements may also need to be factored into the calculation, including profit-sharing schemes, employee savings plan contributions, benefits linked to seniority and the consequences of a non-compete clause.
Not all of these elements will necessarily be compensated by the new employer.
The first objective is to prepare a comprehensive assessment distinguishing what you are giving up, what you will actually lose and what you wish to negotiate.
How do you calculate a welcome bonus?
There is no standard amount.
The negotiation can start with a documented assessment of the remuneration and benefits you will give up by accepting the new position.
Take a simplified example.
An executive leaves their current company and estimates that they will lose:
- €30,000 in variable compensation;
- €20,000 in unvested free shares;
- €10,000 in other remuneration or benefits.
The estimated financial cost of changing companies therefore amounts to €60,000.
This does not mean that the new employer will necessarily agree to pay a €60,000 welcome bonus. It does, however, provide a documented economic basis for the negotiation, rather than presenting an unsupported request for an additional payment.
What should a welcome bonus clause include?
Agreeing on the amount is not enough.
The terms governing payment of the welcome bonus are at least as important as the amount negotiated.
The written agreement should notably specify:
- the amount of the bonus;
- the payment date;
- any continued-employment conditions;
- the circumstances in which repayment may be required;
- the method used to calculate any repayment.
Particular attention should be paid to the payment schedule.
The employer may wish to defer payment, for example until the end of the probationary period. From the employee’s perspective, payment upon joining may offer greater protection because the losses associated with changing employers have already occurred.
An intermediate solution may also be negotiated: part of the bonus paid on joining, with the balance paid on an agreed date.
Can you be required to repay a welcome bonus?
Yes. Under certain conditions, a welcome bonus may include a clause requiring repayment if the employee leaves the company before an agreed date.
The French Supreme Court (Cour de cassation) considered this type of arrangement in a decision dated 11 May 2023 (Cass. soc., no. 21-25.136).
In that case, a €150,000 joining bonus had been paid to an employee, with full entitlement to the bonus conditional upon remaining with the company for three years.
The Court accepted a mechanism requiring repayment on a pro rata basis for the remaining period where the employee resigned before the end of the agreed period, provided notably that the bonus was independent of remuneration for the employee’s work.
In the circumstances of that case, the Court considered that the mechanism did not constitute an unjustified and disproportionate restriction on the employee’s freedom to work.
Check whether repayment is proportionate
The amount to be repaid deserves particular attention.
A mechanism under which the repayment obligation gradually decreases according to the time spent with the company is consistent with the approach accepted by the French Supreme Court.
If a period of twenty-four or thirty-six months is stipulated, it is therefore important to check exactly how the amount repayable decreases over that period.
Identify which types of departure trigger repayment
This is probably the most important aspect of the clause.
The French Supreme Court decision of 11 May 2023 concerned an employee who resigned.
Particular attention should therefore be paid to any clause extending the repayment obligation to other situations, such as dismissal, termination of the probationary period at the employer’s initiative or a mutually agreed termination (rupture conventionnelle).
For an executive or senior executive, one of the objectives of the negotiation is to avoid, as far as possible, having to repay a bonus intended to compensate for a loss already incurred where the termination of the new employment relationship was not initiated by the employee.
What is a guaranteed bonus?
A guaranteed bonus contractually secures all or part of an employee’s variable compensation for a defined period, particularly when they join a new company.
The welcome bonus primarily looks at what you are leaving behind.
The guaranteed bonus focuses on your future remuneration.
Consider an executive joining a company with target variable compensation equal to 40% of their fixed salary.
If they join during the year, several difficulties may arise. Objectives may have been determined before they arrived, the budget may have been prepared without their involvement, or certain performance indicators may still depend on decisions made by their predecessor.
Variable compensation for the first year may therefore be particularly difficult to predict.
Why negotiate a guaranteed bonus for the first year?
Where the objectives determining variable compensation are set unilaterally by the employer as part of its managerial authority, French case law notably requires those objectives to be achievable and communicated to the employee at the beginning of the relevant period.
However, the protection provided by employment law does not necessarily replace the benefits of negotiating these issues in advance.
The aim is precisely to prevent a disagreement over variable compensation from subsequently becoming a dispute.
A guaranteed bonus anticipates this difficulty by determining from the outset the minimum level of variable compensation the employee will receive during their initial period with the company.
How can you negotiate your first-year bonus?
Several arrangements can be considered.
For example, the contract may provide for:
100% of the target bonus to be guaranteed for the first financial year, potentially on a pro rata basis where the employee joins during the year.
Another option is to negotiate a floor, such as 75% of the target bonus.
The drafting should also address what happens if actual performance ultimately exceeds the target.
The guaranteed bonus can operate as a minimum rather than a cap: if the objectives are exceeded and the applicable variable compensation scheme provides for a higher amount, the higher amount may be payable in accordance with the contractual provisions.
Particular attention should also be paid to any requirement to remain employed on the bonus payment date, especially where the employment contract is terminated at the employer’s initiative before that date.
What is the difference between a welcome bonus and a guaranteed bonus?
The two mechanisms serve different purposes.
| Welcome bonus | Guaranteed bonus | |
| Purpose | Compensate, in particular, for remuneration or benefits given up | Secure all or part of future variable compensation |
| Relevant period | Change of employer | Initial period with the new company |
| Basis for negotiation | Documented losses and rights given up | Target variable compensation |
| Key point to review | Repayment clause | Objectives and continued-employment conditions |
| Can they be combined? | Yes | Yes |
Can a welcome bonus and guaranteed bonus be combined?
Yes. A welcome bonus and a guaranteed bonus address two different risks and can therefore be negotiated together.
The first answers the question:
“What am I going to lose by leaving my current company?”
The second:
“How can I secure my remuneration during my first year?”
For an executive or senior executive, negotiating a new role should therefore not be limited to the amount of fixed salary offered.
The overall package should be considered: what you will gain, what you are giving up and the financial risks you are accepting by changing companies.
This analysis may also cover other aspects of the negotiation, including management packages, free shares, BSPCEs, stock options, employment guarantees, termination payments and non-compete clauses.
The objective is therefore not simply to negotiate higher remuneration, but to secure the financial transition from one professional situation to another.
FAQ – Frequently asked questions about welcome bonuses and guaranteed bonuses
Eve Domaniewicz is a French employment lawyer. A former Legal Director and HR Manager, she advises executives and senior executives at key stages of their professional careers, including when negotiating the terms of a new role.
Schedule an appointment now with Eve Domaniewicz’s law firm for tailored, personalised support.