Making the counter-offer

Employers need to be judicious if an employee plans to leave — offering more money or a promotion may not yield the intended outcome

It’s always a dilemma: A key employee announces he has received a job offer from another company — how should the employer respond?

Given the pressure leaders face around retaining top talent, it’s possible a manager may respond swiftly with a counter-offer to entice the employee to stay. That may include promises for a higher salary or a loftier title.

The reality, though, is that while effective talent retention has become a business imperative, organizations need to be judicious in how and when they engage in counter-offers. 

That’s because a counter-offer doesn’t always yield the intended outcome. It may be rejected. It may initiate a rather lengthy negotiation. Or, worse, an employee may accept the offer but remain dissatisfied, only to quit again at a later date — creating a mutually regrettable situation.

And, depending on the nature of the offer, such agreements have the potential to fuel the ire of other employees. If it is perceived the squeaky wheel gets acknowledged, other employees may start to feel underappreciated and become more vocal about their own pain points. Moreover, if the recipient of a counter-offer receives rewards considered unfair or undeserved, this can fuel employee morale and trust issues.

The worst-case scenario is other employees, on witnessing how a colleague who threatened to quit was rewarded, will opt to try the same strategy.

Not a popular option
Counter-offers remain a rare practice at many organizations — 78 per cent of respondents to a 2015 Robert Half survey of more than 2,200 U.S. CFOs did not extend counter-offers to keep staff from leaving. Further, 34 per cent of those who did make counter-offers said it necessitated giving raises to other employees in their department as well.

“Counter-offers are not an effective retention tool,” says the report. “Offering more money to someone to prevent him or her from quitting doesn’t typically solve the issue that prompted that person to resign in the first place. It can, however, upset the company’s salary structure, prompt loyalty concerns and foster resentment among the rest of the team, who may feel that they, too, must threaten to quit to receive a raise.”

Counter-offers tend to be made on an ad hoc basis — 83 per cent of more than 600 respondents to a 2012 WorldatWork survey, for example, did not have a formal policy addressing counter-offers, instead managing them on a case-by-case basis. 

A further 14 per cent reported having an informal policy or practice that provided “general guidance,” while only three per cent had a formal written policy.

Respondents with formal or informal policies said counter-offers are typically provided:

• only for employees who are both in key positions and outstanding performers (39 per cent)

• at the request of a supervisor or manager (36 per cent)

• only for key positions (12 per cent)

• only for outstanding performers (seven per cent).

 Only five per cent of respondents indicated they “routinely make counter-offers” for employees who receive job offers. 

But even the organizations with formal or informal policies to help manage counter-offers weren’t sure they were handling these offers appropriately. Only 32 per cent of these respondents rated their policies as being effective or very effective, found WorldatWork.

Guidelines needed
It is advisable to at least have some guidelines to ensure key considerations are addressed. Such guidelines can inhibit managers from responding in a kneejerk manner — which can help guard against ill-conceived or inappropriate promises being made.

At a minimum, such guidelines should address what type of approval process would be necessary before a counter-offer can be made, including the role of HR in that process. The guidelines could also stipulate that the elements of any counter-offer must be in line with established compensation policies and practices. 

This could help mitigate the possibility of a manager offering a salary increase or bonus that takes an individual’s pay above the range maximum or bonus opportunity for the role that goes beyond what is offered at that level. 

Ensuring that counter-offers don’t create unique “one-off” employment deals that are inconsistent with standard practice can help ensure compensation and reward practices remain fair.

Retention issues
No discussion about counter-offers would be complete without a broader assessment of what is needed to effectively retain talent in general. Respondents to the WorldatWork study identified the following as the top reasons why key talent leaves their organizations:

• Opportunities to earn more pay elsewhere.

• A lack of promotional opportunities.

• Feeling that pay levels are not competitive relative to others outside the organization.

• Workloads are too heavy.

• Work-life balance issues. 

• Concerns about the direction of the organization and its leaders.

• A lack of training and development opportunities.

• Feeling that pay levels don’t reflect employee’s performance and contribution.

• Conflicts or problems with an immediate supervisor.

This list illustrates there are many steps organizations can take to try and retain talent — and reduce job-seeking behaviours — particularly with respect to compensation management practices. Foundational actions include ensuring the organization has well-designed compensation programs that facilitate fair pay practices, and internal pay levels that are market-competitive. 

Effective compensation management, including regular reviews of compensation levels, are also needed, says the Robert Half report.

“Waiting until an employee quits is too late to think about whether the salaries you offer are strong enough... Employees’ frustration over their salaries could fester into a bigger problem of feeling undervalued and underappreciated, which more money via a counter-offer won’t be able to remedy.”

Revisiting total rewards
It’s also important to develop or revisit the broader total rewards strategy to ensure other factors that compel employees to seek out job opportunities elsewhere are effectively addressed.

For example, what does the organization offer in terms of training, career development and promotional opportunities? Does it promote from within? Has it identified potential career paths within and across job families that can be used to frame development and career discussions? 

If promotional opportunities are limited, employers should consider other actions to facilitate employees’ professional growth and development — such as encouraging lateral moves or supporting job enrichment.

Supporting career growth can be challenging, especially at smaller organizations or ones that have moved to flatter organizational hierarchies.

But by exploring out-of-the-box thinking, employers can develop strategies that encourage employees to view the organization as a good place to continue working over the long term.

Letting people go
A final consideration when contemplating talent retention in general, and counter-offers in particular, is that having people leave isn’t necessarily a bad thing when it happens in moderation. To achieve optimal business performance, an employer needs engaged employees who also represent a good fit with the organization. Regular infusions of new blood, diverse experiences and fresh thinking can also continuously strengthen and revitalize a business.

The reality is sometimes people will simply determine the time has come to move on to new opportunities or potentially greener pastures. 

It may be more disruptive to try and tether a key employee to an organization through higher pay when the fit is no longer there than to just wish the individual well and find some other way to close the talent gap.

Ultimately, a key part of effective talent management — and a key success factor when contemplating a counter-offer — is knowing when the best and highest option is to gracefully say goodbye to a good person who is leaving to pursue a new path.

Claudine Kapel is principal and Alina Mitchell is senior consultant at Kapel and Associates in Toronto, a human resources consulting firm specializing in compensation design, performance management and employee communications. They are also co-authors of the HR Manager’s Guide to Total Rewards and Straight Talk on Managing Human Resources from Carswell. Claudine can be reached at (416) 422-1636 and Alina can be reached at (416) 315-2513.

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