February 2022
Why You Should Think Twice Before Extending a Counter Offer
On the outside, a counter offer can look like a win-win situation: the employer keeps their valuable member of staff, and the employee gets a lucrative raise or promotion while still remaining at a comfortable and familiar company. Counter offers also help employers keep employee retention rates high and avoid disruption in the workplace. They save money on recruitment costs for finding a replacement, too.
While it may seem natural for companies to want to hold on to their most talented employees, employers should think twice before extending a counter offer to a resigning employee. The sad reality, however, is that those who wish to leave your company most likely don’t have salary as their only or primary motivating factor. There are often additional underlying issues behind why they have handed in their resignation – those which money cannot solve. In fact, most employees who accept a counter offer leave a company anyway within six to twenty-four months of accepting that offer.
Here are 5 reasons why you should reconsider extending a counter offer to an employee who has just resigned:
Even if counter offer negotiations are cordial and friendly, once an employee accepts a counter offer and remains at a company, it is now known that they were looking elsewhere. Your employee interviewed for and was offered a job by another company, and those facts will always remain. This can lead to a serious break in trust between management and the employee, which can be difficult to recover from. An employee also loses trust and faith in the company who only saw their true value when they threatened to leave.
Managers should be cautious to put the employee on larger or more important projects knowing that there is a heightened chance they could leave the project halfway through its completion. Accepting a counter offer could be followed with a lack of productivity from your once high-performing employee, as they have the knowledge that their job is safe. This purely depends on the employee and your relationship, but a counter offer could also lead to laziness and arrogance after your hand has been forced into offering a higher salary.
There are likely reasons beyond money why your employee was seeking a different position. In fact, a counter offer can be an expensive way of putting off the long-term solution of letting that employee go. Research consistently shows that employees who accept counter offers are likely to ultimately quit their role within a year of accepting their counter offer. After the quick-fix of a salary rise and other additional benefits agreed in the counter offer, your employee will inevitably begin to notice old problems resurfacing. These may be issues with their day-to-day responsibilities, the culture of the company, practical problems like a long commute, or lack of career development opportunities.
The employee who has accepted a counter offer may be concerned about whether they made the right decision, and wondering if the grass was indeed greener on the other side. They can become disengaged with their work, and you may spot a dip in productivity. These employees may have already ‘quit’ in their heads, but are coming into the office for a wage, rather than any dedication or love of the job. As an employer, throwing money at the problem is not always the best solution, as you may end up eventually losing out as the unhappy employee leaves anyway.
As much as you hope these negotiations are conducted in private, it is unrealistic to think that members of the team aren’t aware of the situation. One member of a team getting a salary increase can create an imbalance of salaries as well as underlying mistrust around a formerly productive team. You may begin to get further pressure from other employees asking for salary increases in-line with the counter offer, and create a ripple effect of negativity across your team which can affect productivity and damage your corporate culture. Before making a counter offer, consider the dip in morale you may risk across your team if one is offered a substantial increase to remain in your company.
Counter offers are likely to be given to employees who make significant contributions and therefore would be tough to replace, or perhaps were even earmarked for a promotion within your organisation. Advertising for, hiring, and onboarding a skilled new employee is a long and costly process, and a counter offer can certainly fix a short-term employment crisis in the fight to retain in-demand talent within your industry. Unfortunately, the counter offer simply only works as a stop-gap solution. Consider your budgets carefully when considering extending a counter offer. How much will the counter offer cost you over the course of a year compared to the recruitment and onboarding cost for a new employee (who will likely be more productive)?
Those who are savvy and know their skills are in-demand could be making the play of attracting more job offers in order to get a counter offer from you. This is a calculated and risky move, and you should be wary of employees who are willing to use their role within your institution as a bargaining chip. Such tactics show a lack of commitment to the role, and that the member of staff in question is now only motivated only by a salary increase at your firm. Instead of going for the costly counter offer, it may be better in the long-run to let your ambitious yet untrustworthy employee go find opportunities in pastures new.
Are there alternatives to the counter offer?
There are other options you can explore when facing a resignation from a talented member of staff. This involves an honest conversation and finding out the core reasons why your team member is leaving. There is a possibility that these reasons can be addressed before they leave for good. There is a chance they are still enjoying their role, but there is an aspect which has made the job tough. This could be because of a tough commute which can be fixed with flexible working hours, or a lack of career development which can be turned around with a new training programme.
Even if you decide not to give a counter offer or fix these core issues immediately to retain the employee, this feedback is still vital to help you identify issues within your workforce which can be addressed to keep your employee retention rate in the future.
More often than not, a counteroffer is only a plaster on a wound that won’t heal. It is worth instead negotiating a leaving date with your employee which will have overlap with their new replacement. At a small extra cost, your new employee can be brought up to speed with the expert who will be able to train them on how to do the role to their excellent standards. This handover process is a good alternative to offering a costly counter offer to a disengaged employee.