Are you concerned that a key employee might leave your company? Would their departure jeopardize a project, a team, or an important dynamic? In this case, a retention bonus can be a targeted tool for employee retention. We explain how it works.
Article in 1 minute
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The retention bonus is a voluntary tool that employers can use at their own discretion.
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It enables key personnel to be retained temporarily during sensitive phases.
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For it to be effective, it must be used in a targeted manner, clearly regulated, and set out in writing.
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It complements a comprehensive employee retention strategy based on development, recognition, and commitment.
What is a retention bonus?
A retention bonus is a financial reward that employers grant voluntarily to retain employees for a certain period of time. It is usually used during transitional phases or organizational changes.
Unlike traditional bonuses, which reward past performance, retention bonuses are tied to a future commitment. Payment is only made if the person in question remains with the company until a specified date. If the employment relationship is terminated before this date, the entitlement to the bonus usually lapses automatically.
What are the objectives of a retention bonus?
From the employer's point of view, a retention bonus has several objectives:
to avoid critical departures during important changes, such as mergers, acquisitions, or restructuring
to reduce staff turnover
to secure know-how and ensure the continuity of business activities
to discourage particularly high-performing employees from moving to a competitor or taking early retirement
Legal framework for retention bonuses in Switzerland
Swiss law does not contain any specific provisions on retention bonuses in the Swiss Code of Obligations or other legal provisions. In principle, the granting of such bonuses is at the discretion of the employer.
However, if a retention bonus is paid regularly or expressly stipulated in the employment contract, it can become binding. In this case, it can be considered part of the salary or an acquired entitlement and can be claimed from the company. If there are disputes about the legal classification or payment of a retention bonus, the courts will decide on a case-by-case basis. The specific circumstances, the agreements made, and the employer's practice are decisive in this regard.
How can a retention bonus be introduced for employees?
Step 1: Set the framework and define the goals
First, clarify the context: Why should a retention bonus be introduced? Is a key person threatening to leave, is there increased turnover in management, does a critical project need to be secured, or is a merger imminent? Also define clear goals: Which employees should be targeted, for what period of time, and for what purpose? It is important that the bonus is tailored to a specific operational or HR-related situation.
Step 2: Identify employees who should be retained
The retention bonus should be granted to employees whose departure would have a significant impact. In particular, consider:
rare or critical skills, such as technical expertise, mastery of a tool or process, or strategically important knowledge
roles that are difficult to fill in the job market or require a long training period
employees who play an important role in corporate culture, innovation, or leadership
This selection can be based on discussions with managers, a talent review, or exchanges with HR. This allows operational assessments and strategic considerations to be brought together.
Step 3: Determine the terms of the bonus
Once the relevant profiles have been identified, the next step is to determine the specific terms of the retention bonus. First, determine the amount of the bonus, which is often between 10% and 30% of the annual salary. Also, determine the payment terms, such as a one-time payment or several installments. Equally important is the length of the retention period, which in practice is usually between 12 and 24 months.
Tip: Be realistic and make sure that the bonus fits in with your company's existing remuneration policy.
Step 4: Put the agreement in writing
To ensure that the agreement is clear and legally binding, it should be set out in writing in a comprehensible and legally valid document. The agreement should include the following points in particular:
the amount of the bonus and the payment terms
the eligibility requirements, in particular how long employees must remain with the company in order to be eligible for the bonus
situations in which the bonus is forfeited, such as in the event of termination
possible targets if the bonus is linked to specific results (e.g., completion of a project or maintenance of a performance level)
Step 5: Communicate transparently and follow up
Present the retention bonus in a transparent one-on-one meeting. Be prepared to answer questions and adjust individual points if necessary. Then make sure that the agreed retention period is adhered to – both from an operational and a tax perspective.
Good to know: In Switzerland, a retention bonus is generally considered part of taxable income.
Tip: Integrate monitoring into your existing HR tools, such as performance software or talent dashboards, so that no information is lost.
Other ways to retain employees
The retention bonus is not the only way to retain committed employees. For sustainable employee retention, it is worth implementing additional measures:
Offer clear development prospects through transparent career paths and a genuine internal mobility policy.
Enable further training that is planned together with employees and supports both personal and company goals.
Assign cross-functional or strategic projects to employees you trust—a strong sign of recognition.
Adjust certain benefits to the length of service, such as additional vacation days, preferential access to further training, or loyalty bonuses.
In summary, retention bonuses are an effective tool for keeping key employees in the company. However, in order for them to be effective, they should be part of a more comprehensive employee retention strategy that focuses on recognition and development.
Retain employees in the long term with the right HR processes: Attracting and retaining talent is only possible if HR processes are clearly structured and employees are well supported in their day-to-day work.
