Retention bonuses vs. employee recognition: What works for top performers?
By Zach Links●6 min. read●Jun 13, 2025
Retaining your top talent can be challenging, not to mention expensive.
Replacing a star employee could cost your company 3x their salary when you factor in recruitment, decreased productivity, and the valuable institutional knowledge they take with them.
Retention bonuses and employee recognition programs can help, but each strategy has its advantages and limitations.
For HR leaders, the decision isn't always straightforward. The effectiveness of each approach can vary based on your company culture, industry, and the specific needs of your top performers.
To compare retention bonuses and recognition programs, examine what research has to say about each one’s impact and use these actionable insights to help build the right retention strategy for your organization.
Why do top performers leave?
Understanding why employees leave is the first step in creating an effective retention strategy.
According to Work Institute's 2025 Retention Report, these were the primary reasons for employee turnover in 2024:
Career development (18.9%)
Health and family concerns (12.4%)
Work-life balance (11.9%)
Disappointment with total rewards, meaning pay, benefits, or perceived inequity compared to market standards, accounted for just 8.2% of departures.
What's particularly noteworthy is that over 76% of employee departures in 2024 were considered preventable. This means organizations and their HR functions can address the root causes of turnover through thoughtful policies and practices.
For top performers, these statistics take on even greater significance. High-achieving employees typically have more options in the job market and higher expectations from their employers. When their needs aren't met, they're often the first to find opportunities elsewhere.
With that in mind, go ahead and take a closer look at 5 factors that can drive high performers out the door.
1. Limited career growth opportunities
Top performers crave professional development. When they can't see their next move within your organization, they'll look elsewhere for growth.
Stagnation isn't an option for high achievers. They want to expand their skills, take on new challenges, and advance their careers. Organizations that fail to provide clear advancement paths risk losing their best talent to competitors who prioritize development.
2. Poor management relationships
The relationship between employees and their direct managers significantly impacts retention. Poor leadership, lack of support, or ineffective communication from managers accounted for nearly 10% of all departures in 2024, according to Work Institute's data.
Top performers expect clear direction and constructive feedback from their managers. They want leaders who understand their aspirations. When supervisors fail to support development or acknowledge contributions, high-performers quickly become disengaged.
3. Insufficient recognition
Top performers deliver exceptional results and expect to be acknowledged for their contributions. When their efforts go unrecognized or unrewarded, they feel undervalued and begin exploring other opportunities where their work will be appreciated.
Recognition isn't just about monetary rewards or praise. High achievers want to know their work makes a difference. Companies that don’t provide meaningful recognition risk sending the message that outstanding performance isn't valued.
4. Busy work
In addition to praise, high performers crave “more purposeful stretch,” according to business behavioral expert and Forbes contributor Dr. Diane Hamilton.
“What they are really looking for is trust, relevance, and a sense of impact. They want to know that what they do makes a difference. That their time and ideas matter,” Hamilton writes.
High performers feel a stronger sense of ownership when their work has meaning. When saddled with mundane tasks, they’re more likely to look for new opportunities.
5. Work-life balance
Even the most dedicated employees need balance. And top performers are particularly susceptible to burnout due to their high standards and work ethic.
High achievers often take on more responsibility and put in extra effort to excel. Without adequate boundaries and support for well-being, this commitment can lead to exhaustion. Organizations that expect continuous high performance without adequate flexibility and wellness support can lose their best people to competitors with more sustainable work environments.
Do retention bonuses work to retain employees?
Retention bonuses are designed to encourage an employee to stay with a company for a specified period of time. They typically range from 10% to 30% of an employee’s salary — a large sum that can tip the scales toward staying.
Still, stay bonuses aren’t always enough to keep standout employees engaged. Tracy Winton, an HR leader at Iovance Biotherapeutics, told Harvard Business Review that when she has offered retention bonuses, 90% of those employees left anyway.
“It moves the employee/employer relationship away from the ideal partnership state and towards the transactional,” Winton said.
Retention bonuses can help you keep your best employees, but you should know the pros and cons before putting an offer on the table.
Benefits of retention bonuses
Retention bonuses provide immediate financial incentives that can motivate employees to reject competitive offers. The clarity of a retention agreement also creates transparency for both parties, setting clear expectations about duration and requirements.
Employee retention bonuses paid out in installments (also called retention pay) may give employees extra incentive to see the contract through and maintain their performance level in order to receive the full payout.
These bonuses are particularly effective during periods of organizational change such as mergers, acquisitions, or leadership transitions. When uncertainty is high, financial incentives can provide stability by retaining institutional knowledge and maintaining operational continuity. This allows companies to focus limited resources on their most critical roles and top performers.
Retention bonuses also allow HR teams to counter competitive job offers without committing to permanent salary increases. This flexibility helps companies respond to market pressures while managing long-term compensation structures.
Drawbacks of retention bonuses
Retention bonuses are ultimately short-term solutions. They may temporarily delay departures, but they won't resolve fundamental problems like poor management or work-life balance concerns.
There’s also a risk of perceived inequity — employees who don't receive retention bonuses may feel undervalued compared to their colleagues. Retention bonuses are selective by nature, and they can hurt team morale long after the payments are made.
Retention bonuses are an expensive upfront investment. And they don’t guarantee long-term loyalty. The significant cost — often tens of thousands per employee — may appeal more to those motivated primarily by quick financial gain. Those employees are likely to resume their job hunt after receiving their bonus.
These bonuses also come with tax implications that can hurt their perceived value. With federal withholding rates of 22% for supplemental wages (plus state taxes and FICA), employees receive significantly less than the gross bonus amount. This tax treatment may create disappointment when employees receive less than anticipated.
Does employee recognition work to retain employees?
A recognition program can help retain your most valuable employees, but the quality of recognition matters.
According to a recent research report from Gallup and Workhuman, only 38% of employees with recognition programs say the program is very good or excellent. And those employees are 2.5x as likely to be engaged as employees who have a recognition program they rate less favorably.
Ultimately, the report found that well‑recognized employees were 45% less likely to have turned over two years later.
Let’s take a deeper dive into how an effective employee recognition program can help you keep your top talent.
Benefits of recognition programs
Retention bonuses usually target a small percentage of the workforce. But recognition programs can create an org-wide culture of appreciation. This inclusive approach can boost morale across teams and help every stellar employee feel valued.
Recognition can take many forms, from acknowledgment in team meetings to tangible rewards like gift cards. A strategic mix of non-monetary recognition and smaller, more frequent rewards can increase engagement without breaking the bank.
A formalized program can drive consistent, year-round engagement, reinforcing positive behaviors and maintaining motivation over time. This can help drive engagement during challenging periods when burnout risk is high for top performers.
These initiatives support intrinsic motivations, connecting to employees' deeper needs for purpose. By recognizing contributions that align with company values and mission, these programs help top employees see how their work matters.
Drawbacks of recognition programs
Recognition programs aren’t a panacea for voluntary turnover. Some talented employees will leave a job they love for better compensation, especially in a down economy.
Even the best recognition program can feel insincere without fair compensation and career opportunities. Organizations must ensure their recognition efforts are part of a comprehensive approach to keep elite employees engaged.
Effective employee recognition programs also require ongoing commitment and optimization. Unlike a one-time retention bonus with clear parameters, these initiatives need continued buy-in from leadership. Even after implementation, HR teams have to regularly communicate the benefits of their programs to demonstrate ROI and secure budget.
When to use retention bonuses vs. recognition programs
Retention bonuses can be used during specific high-risk periods — M&A (mergers and acquisitions), leadership transitions, or critical project phases where losing key talent could derail operations. For a software company that needs its lead developer to stay through the launch, a 20% retention bonus might be the difference between a successful product release and costly delays.
Recognition programs, on the other hand, can build long-term loyalty through consistent appreciation. They're an ongoing culture strategy rather than a band-aid fix for turnover risk — a worthy investment in any economic climate or job market.
Use employee recognition programs to drive engagement, improve employee retention, and nurture your best performers. But, when you can’t afford to lose a vital employee, you may want to offer a retention bonus.
Key takeaways
Both retention bonuses and recognition programs can help keep top performers, but they serve different purposes in your retention strategy.
Targeted retention bonuses work best as tactical solutions to prevent key departures during high-risk periods. Recognition programs promote long-term engagement by ensuring that outstanding work is consistently acknowledged.
Beyond stay bonuses and employee recognition, HR leaders must address the root causes of turnover to keep high performers. An effective retention strategy requires a comprehensive approach that includes career development support, work-life balance, and clear communication from management.
