The vesting option, worth $3.25 million, will become guaranteed if Hernandez appears in 120 games next season. Seeking a cheaper deal, Cincinnati had already decided to not pick up Hernandez's $8.5 million club option and chose to give him the $1 million buyout.
"He was a priority for us this winter," Reds general manager Walt Jocketty said on Monday. "He's familiar with the club and our pitching staff. We're confident his knee has recovered. He and [Ryan] Hanigan, we feel, are a good tandem, catching-wise."
Hernandez's agent, Eric Goldschmidt, worked on the deal with the Reds over the weekend and he told the 33-year-old catcher that it was completed on Sunday night.
"It's a good place with great players," Hernandez said of the Reds from his home in Miami. "I know they'll do very good next season. That's why I decided to come back."
Acquired last winter from the Orioles in a trade for utility player Ryan Freel and two prospects, Hernandez batted .258 with five home runs and 37 RBIs in 81 games during his first season with the Reds.
On July 21, Hernandez had arthroscopic surgery to clean out his left knee and missed 57 games. He also made 21 starts in place of Joey Votto at first base. Hernandez was not surprised when his option wasn't picked up.
"I expected it to happen," he said. "Hopefully, next year, they'll see Ramon Hernandez play the whole year."
Hernandez continues to rehabilitate his knee during workouts four times a week in South Florida.
The decision to bring Hernandez back means that Hanigan will return to his backup role. Hanigan received significant playing time while Hernandez was injured or playing first base.
Hanigan is considered stronger defensively -- he caught 39 percent of runners (18-of-48) trying to steal compared to Hernandez's 25 percent (11-for-44). Hanigan had a .381 on-base percentage compared to .348 for Hernandez.
But Hernandez brings more offensive pop for a lineup that was run-starved last season. He batted .328 (21-for-64) with runners in scoring position compared to .149 (7-for-47) for Hanigan.
"It was important," Jocketty said. "He provides that veteran experience along with Scott Rolen and Arthur Rhodes. Our younger club needs veteran influence."
But that need for Hernandez's veteran influence, even at a reduced rate, will still further restrict a Reds payroll that was approximately $73 million in 2009. Nine players -- Francisco Cordero, Aaron Harang, Bronson Arroyo, Rolen, Brandon Phillips, Willy Taveras, Hernandez, Rhodes and Mike Lincoln combine to earn $64.75 next season. That doesn't include arbitration-eligible players due raises like Jonny Gomes, Nick Masset, Jared Burton and Laynce Nix.
Jocketty wasn't ready to say that the Reds were looking to trim the payroll.
"We really don't know yet," Jocketty said. "The final budget won't be done until December and then we'll have a better idea once season ticket sales come in. It may have to come down some but it's too early to say. I have to approach that way but if it's not [that way], we'll have a nice surplus."
A story out of the GM Meetings last week in Chicago said that Cincinnati might have to move players in order to get a reduced payroll into the $65-70 million range. With Phillips, who is due $6.75 million, likely being the most marketable player to deal, several outlets have focused on him being in play for a trade.
With Hernandez now signed, it seems less logical that the Reds would turn around and trade key members of the roster like Phillips or Arroyo.
When asked directly, Jocketty said he wasn't trying to trade Phillips.
"All of that stuff was speculation by a number of different writers," Jocketty said. "They see that our attendance is down and so that must mean our payroll will go down. We were grouped in with clubs that are reducing payroll but we're not in that position and hopefully won't be."