The Pros and Cons of Counteroffers

​Less than a year after becoming office manager of a small testing firm in Chicago, Linda Sullivan was ready to quit. She believed her marketing skills were being wasted in an administrative position, and she felt underpaid to boot.

Linda's next step was one duplicated by thousands of other unhappy employees each day: She revised her resume and started job hunting. After a few weeks, Linda received an attractive offer from another Chicago firm, which she quickly accepted. Then she made an appointment to tell her boss the bad news.

To Linda's surprise, her boss was quite sympathetic. "I didn't know you were unhappy," he told her. "Why didn't you come to me sooner?" The boss then explained how highly he valued her skills, and to prove it, he offered a change of responsibilities, a new title—director of marketing—and a $5,000 a year raise. Linda (not her real name) readily accepted the counteroffer. There's no ill will, she said, because both sides now understand that her old position was a bad match.

Counteroffers usually don't end so happily. In a more typical scenario, an employee hears about a job opening that includes a large pay hike, greater flexibility or more appealing responsibilities (or all of the above); applies for the position; and lands it. She then approaches her boss with a proposition that, in effect, says: "I won't jump ship in exchange for an even higher raise and the other benefits of this new job."

Most people managers wouldn't accept such a proposal, and a few would terminate the employee on the spot. Even when a counteroffer is proposed and accepted, HR professionals and recruiters report that problems often follow, according to research by LiveCareer, a job-search firm. For instance, about 57 percent of all employees who accept counteroffers change companies within the following 24 months, the research shows, which raises questions about the long-term value of extending counteroffers.

"If you send a signal that you're unhappy, and if your boss personalizes your desire to leave, then staying doesn't make sense no matter what they offer you," said Arlene Hirsch, a Chicago career counselor and author. "Your motives will be suspect from that point on," she said, since your boss will wonder whether your resume is still on the street.

The Kiss of Death?

Most employees think of themselves as valuable enough to warrant a counteroffer if they should ever threaten to leave. Receiving such an offer, however, shouldn't necessarily be viewed as a vote of confidence.

"People who enter a job search with the idea that they'll get a counteroffer and stay put deserve the fate that awaits them," said Paul Falcone, CHRO at the Motion Picture & Television Fund in Los Angeles and author of 101 Tough Conversations to Have with Employees (AMACOM, 2009). "Once you show that you're willing to leave, you become the person who's always blamed when something goes wrong. It's a tough stigma to overcome."

The research shows that accepting counteroffers can harm your career. Almost 60 percent of hiring managers agree that any employee can be replaced, and 45 percent said they perceive counteroffers as a short-term cure for a long-term problem.

While most people managers don't embrace the practice, they do admit to using counteroffers from time to time as a retention tool. That said, 37 percent said that extending counteroffers sets a bad precedent; 34 percent said it erodes employee trust; and 30 percent said it negatively impacts employee morale.

"Our theory is that anyone who can get another job can also get more money," said a vice president of employee relations (ER) at a New Jersey pharmaceutical company. "And if we're pushed into making promises about future promotions to keep someone on board, it gets to be real messy, and I have to wonder about that employee's commitment."

This corporate strategy is widely praised by HR managers but, in practice, many employers find room for compromise, according to recruiters. "If an employee is critical to a company, then the company will do anything it can to convince that person to stay, even if it isn't in the employee's best interest," Hirsch said.

"When an employee tenders a resignation, an astute manager will ask, 'What are they offering you?' At this point, the auction process begins," she explained. "The question ceases to be one of career development and becomes one of material enticement."

To be sure, even when an employer extends an appealing counteroffer, it can backfire on employees who stay put. In one extreme situation, "a resigning construction project engineer was offered a new car and substantial bonus when the entire project was completed. He stayed, only to be axed six weeks later when his portion of the project was finished," Hirsch said. "The reward for remaining loyal was no more car, no bonus and no job."

How Companies Respond

Although many HR managers admit to providing counteroffers, most carefully restrict what those offers include.

"Our exit interviews clearly show that the No. 1 reason people leave us is for a better job opportunity, not for a higher salary or more benefits, which usually are way down the list," said an HR director in Redmond, Wash. "We've changed opportunities and responsibilities for people, which may or may not affect salary. Some stay, but many don't," because despite company efforts to retain them, their reasons for leaving don't change.

A few employers are even more decisive: They simply prohibit financial counteroffers. "We don't want to send the message that we'll beat another company's salary offer. That sets a bad precedent," said the New Jersey ER vice president. "I don't like counteroffers either personally or as corporate policy. There usually are reasons besides money why employees investigate the job market—they don't get along with their boss or they're bored on the job—and those don't change when you return to your desk with a bigger paycheck."

Some HR managers admit to granting substantial pay hikes, but only when they believe an individual's salary level is below industry standards. "If someone leaves strictly for more money, it would cause me to examine how I compensated that individual, as well as others here who might be tempted into the market by more money," the ER vice president said.

On other occasions, counteroffers are rationalized. Some companies realize they have deficiencies in management training and career planning, and they make a counteroffer with the idea that this person deserves better treatment, Hirsch said. "That doesn't happen often, but it happens."

To stem a potentially damaging slew of defections, HR managers should try to catch potentially dissatisfied employees long before they reach the counteroffer stage. "Using performance reviews, we attempt to identify key performers who need greater challenges before they start looking around," the ER vice president said.

A more Machiavellian motivation for a counteroffer is to give a company time to find a suitable replacement for the disloyal employee. "They say to themselves that once you initiate discussions with someone else, you're out. But then they make a counteroffer to keep you until you can be replaced," Falcone said.

Occasionally a counteroffer, even one offered belatedly, fulfills a need for all involved. One supervisor accepted a job at the New Jersey pharmaceutical company and, after about a month, he received a counteroffer from his former company, a mom-and-pop firm in the small Virginia town where he had grown up, said the ER vice president. "The small company had a hard time trying to replace him given his excellent track record. When his old company met our offer plus a little bit more, and counseled him on the career opportunities available, he accepted."

In the wake of losing a top new recruit, did the company offer a counter-counteroffer? "If a person wants to leave us, no counteroffer should change his mind." The answer was no.