How to Make a Counteroffer

You may try to persuade a valued employee not to leave, but it can't just be about the money.

After three years of malaise, the U.S. economy seems poised for a rebound. The stock market is showing signs of nascent growth, and interest rates appear to be rising faster than many of us had expected. A robust job market may not be far behind.

Unfortunately, even though the overall economy may be improving, many individual companies may still be operating under a hiring-freeze or a hiring-delay policy. And that can spell disaster for line managers who start losing key staff members to competitor organizations that may be better able to participate in the general economic uplift.

If a key employee’s resignation hits your desk and your company is still in a holding pattern on hiring, it may be time to consider the pros and cons of making a counteroffer.

This is not to say that counteroffers should become common practice in the recruitment and selection game. They should not—largely because an employee who has gone through the mental process of deciding to terminate employment may have experienced an attitudinal separation that can’t be overcome readily.

In addition, appearing to throw dollars at people to keep them aboard once they’ve made a commitment to another employer could be perceived as desperation by the company and—if the counteroffer is accepted—poor career management by the employee.

Moreover, headhunters say that most employees who accept counteroffers are gone nonetheless within six months. In the absence of sincere management intervention, the reasons that an employee decides in the first place to leave an organization usually don’t change or disappear. The additional cash from a counteroffer simply delays the inevitable, and employees who accept counteroffers because of the fear of change or out of some misguided sense of loyalty recognize the error of their ways and eventually leave anyway.

In addition, a counteroffer strategy has been made even more challenging by the fact that many employees feel they’ve been treading water in their career for the past three years—in terms of promotions, added responsibilities or significant pay increases.

Yet sometimes a counteroffer may make sense in dealing with employees who have tendered notice. The key lies in knowing how to structure the counteroffer to help the individual reconnect with the organization and gain an opportunity to reinvent his or her job in light of the company’s changing needs.

When It Makes Little Sense

People typically leave companies either because there’s little or no communication with the supervisor or because the employee senses a lack of appreciation for a job well done. Think about it: Employee dissatisfaction comes in all shapes and sizes, but the myriad reasons fall into one of two categories: communication and recognition.

It’s said that employees join companies but leave managers. When that adage applies to a particular situation in your office, you’re best off allowing a resigning employee to leave and get on with his career elsewhere. In such cases, it may be best to leave the headcount unfilled than attempt to convince an unhappy soul to remain aboard.

For example, if an employee isolates herself from the group, complains about the company incessantly or has otherwise developed a time-clock mentality or an entitlement attitude, then the resignation may be a welcome event.

That’s easy enough. But what happens when one of your best-performing employees suddenly gives notice? And how is that news compounded by the fact that your company remains in a hiring freeze? A common reaction may sound like this: “What? I had no idea that she was looking for other work. She certainly never said anything to me. I really don’t want her to leave—I can’t bear the thought of refilling her job and having to train a replacement. Worse yet, I may have to do the work myself while we wait for headcount approval.”

If your reason for wanting to counteroffer an employee to stay is solely for your own benefit, then the counteroffer probably won’t work. Even if the individual were to accept a counteroffer, the selfish reason underlying this tactic would show itself in no time. In short, although you may have delayed the individual’s decision to leave, you wouldn’t be in a position to better the individual’s career development in your company because your focus would be on your own needs rather than hers.

Counteroffers for ‘Keepers’

In contrast, a counteroffer must stem from a genuine concern for your subordinate’s needs. It’s a given that we all take each other for granted when we work together day in and day out, but when someone is ready to breach the employment relationship, special care must be given to the employee’s concerns. Money is important, but it’s less important than individuals’ perceptions of their own career growth and development.

Here’s how you might initiate a counteroffer discussion:

“Janet, I was so surprised to hear that you’re considering leaving us after three years. You joined us in 2000 just as the economy was beginning to tank, and there have been so few opportunities available internally. We haven’t been able to promote people, make market equity adjustments to their pay, or otherwise find concrete ways to reward our key employees. But I want you to know that you are indeed a key employee. The management team in our department considers you a ‘keeper,’ and we certainly would do whatever we could to make you happy and have you stay with us.

“I respect the fact that you may ultimately decide to leave us and take your chances of finding greener pastures elsewhere, but I’d like to ask what prompted you to consider looking elsewhere. Also, if you wouldn’t mind, would you share some of the specifics regarding your proposed title and salary? I’d like to know what we’re up against.”

After listening to the employee’s explanation, continue this way:

“I can’t make any promises to you during this meeting; this is simply meant to be a fact-finding mission for now. Still, it’s important for me to relay to you, on behalf of the management team, that we’d like the chance to provide you with some of those same opportunities at our company. Now that the economy is gaining momentum, we expect our revenues and profit margins to rise, and that would allow us to grow and develop our key contributors. Let me share this with you: I recognize that this is about more than money, but if we were able to match your proposed salary, title and/or new responsibilities, we’d like you to consider remaining on board.

“I’d really like to find out if there’s a chance of salvaging our employment relationship. Even though I can’t promise anything at this point, I’d hope that you would consider allowing us to explore this avenue with you.

“If we can’t develop an overall career development strategy and growth path that would motivate you to stay with us, then we’ll certainly support your transition to the new firm. After all, losing key employees isn’t ever fun, but we’re always happy to see people developing their careers and facing new challenges.

“On the other hand, we might be able to ‘play headhunter’ in your case and carve out a path to newer responsibilities within the organization. Would you be willing to engage in those discussions with us?”

Such an honest and selfless approach to counteroffer discussions will almost always be met with flattered acceptance. After all, the employee will understand that your company sees the bigger picture of career rather than the immediate lure of money. This broader approach to career building will also help your company avoid the No. 1 error that organizations make when engaging in counteroffers: assuming that money alone is the issue.

Many a disgruntled “counterofferee” has walked away from a current employer’s insincere attempts at keeping the individual on payroll, concluding: “They just don’t get it. Why are they throwing money at me now? If I’m that good, they should have offered me that money two years ago. They always cry broke, but all of a sudden they can find $15,000 in the budget to get me to stay. No thanks.”

Making Acceptance A Step Toward Success

Your counteroffer proposal probably won’t meet the terms of the external company’s offer. Either you won’t have enough cash to bridge the gap, or your internal equity matrix wouldn’t let you award the salary increase even if you had the money in your budget, or a promotional title increase won’t be available until someone else in the organization leaves and frees up the headcount. In the context of such restrictions, you’ll need to structure your counteroffer more creatively and include other benefits that the individual may not be thinking about. For example:

“Janet, I’m happy that you’re willing to allow us to explore a counteroffer with you in order to keep you aboard. We’ve looked at the opportunity that you’ve been given by XYZ Company, and we’d like to discuss some of the ideas that we’ve come up with.

“First, I just wanted to let you know that I’m sorry if I’ve let you down. I never meant to take you for granted or fail to recognize your contributions to our department. That may have been how you interpreted things in light of the economic challenges that our company, like all other companies, has been facing, but that was certainly never my intention. Second, we can’t match everything that XYZ Company is offering you. I need to tell you that up front. Based on what you’ve told me, they’re offering you a director title at $75,000 a year with a staff of six. If you remain with us, you would have to retain your current manager title, we could raise your salary from $63,000 to $68,000 without breaching any of our internal equity guidelines, and we could reassign one headcount to bring your staff up to a total of four people.

“In addition, we would consider enrolling you in a graduate-level two-year marketing certificate program at the company’s expense as well as assigning you to the corporate office in Houston for two one-week trips next year. This way, you’d get to know personally the people that you spend so much time with over the phone and maybe open a communication channel that could lead to a job opportunity at the headquarters office in the future.

“And don’t forget: As a three-year employee, you’re only two years away from being fully vested in your 401(k) as well as the company’s defined benefit pension plan. Of course, you’ll have our commitment that as any internal opportunities surface, you’ll be the first in line for consideration.

“We would politely ask that you think about this, discuss it at home with your family or significant other, and then get back to us in a day or so.

“What are your thoughts?”

A Professional Approach

With such a respectful, selfless and well-thought-out counteroffer strategy lined up, you’ll no doubt have a chance at retaining this individual. Even if you’re not successful, word will get out that you handled the matter professionally, that you put the individual’s career interests above your own needs and that you were very “cool and classy” about the whole thing.

The outcome may be beyond your control; the strategy that you employ, however, will make you feel good personally and distinguish you as a true leader within your company.

As the economy picks up, your organization will no doubt feel the pinch of the revolving door. Expect it and, more important, be prepared to execute a strategy to keep your key players in place. As a matter of fact, you might want to take the time now to consider who those key players are and then run through a table-top exercise of what your company would do to keep them should they ever give notice.

You might even find that a proactive conversation about an individual’s career needs at this point—before anyone gives notice or threatens to leave—could help you fend off the counteroffer dilemma in the first place.

Paul Falcone is director of international human resources at Paramount Pictures in Hollywood, Calif. He is the author of four books published by AMACOM, including The Hiring and Firing Question and Answer Book (2001) and 101 Sample Write-Ups for Documenting Employee Performance Problems: A Guide to Progressive Discipline and Termination (1999). This article represents the views of the author solely as an individual and not in any other capacity.