Hiring the best programmers will not help significantly if the programmers leave before finishing the task. Retention bonuses may be a critical element in a well-designed Year 2000 compensation package. Refundable Compensation Sometimes retention bonuses are paid up front, subject to an obligation to repay if the employee quits before a stated time. Refundable compensation is more expensive than retention bonuses because it requires earlier payment and may be difficult or impossible to recover. The programmer may not have the money to repay, or the courts may hold that repayment is against public policy.
Refundable compensation works better when the programmer is an independent contractor.
An independent contractor is entitled to a full tax deduction for the repayment, both for income tax purposes and for employment tax purposes, and the public policy argument is less persuasive. Most companies already provide some form of equity compensation to many employees. Some existing stock option plans can easily be extended to the programmers, with little or no change. In other cases, the class of eligible employees must be expanded or the vesting provisions should be changed. It also may be possible to issue free-standing stock options without reference to any plan.