Do Counteroffers Make Sense?



When an employee decides to take another job, should an employer make a counteroffer, usually in the form of a pay increase, in the hope of retaining that employee?

For many companies, the answer is yes. A 2018 survey of 5,500 hiring managers by staffing firm Robert Half International Inc. found that 58 percent of managers make counteroffers to retain employees who receive job offers from other employers. The most common reasons for doing so are to avoid the loss of the employee's institutional knowledge and to dodge the cost of finding a replacement.

Low Unemployment, More Counteroffers

The increasing difficulty in finding new talent is another key driver of counteroffers. As unemployment rates fall, finding people with needed skills and experience is getting more difficult for many organizations. "With the candidate market consistently tightening, the volume of candidates receiving counteroffers has increased significantly," said Bill Kushner, branch manager for HR and administration with staffing firm Addison Group in Chicago. "Organizations' time-to-fill rates have been steadily increasing, and it is having a direct impact on their bottom lines."

Employers that are open to making counteroffers tend to focus those efforts on employees with much-needed skills. "Assuming that the other offer is within reason, you should consider the employee's value to the company and how much you stand to lose" if the employee leaves, said Nate Masterson, CEO of Maple Holistics, a Farmingdale, N.J., personal care products company with 32 employees. "If the person is extremely skilled and seems committed to your company, do what you can to make them an attractive offer."

Others are not convinced counteroffers are worthwhile. "Counteroffers do not make much sense," said Piotr Sosnowski, vice president and co-founder of career and resume website Zety, based in Warsaw, Poland. He noted that counteroffers create a kind of "management debt" that can lead to division within teams and departments among co-workers who aren't getting raises.

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Short-Term Fix

"If someone has taken the time to apply for new work"—especially if he or she hasn't sought a pay increase from the current employer or pursued career-development opportunities—"then it's no longer about the money," Sosnowski said. The employee is probably still unhappy and likely to leave in the near future. "Salary is not normally the primary reason for people to leave" an organization, he said.

The Robert Half International survey found that employees receiving counteroffers remain with their employer for less than two years on average. Something organizations should factor into their decision-making is, "How long will this tide you over?" Kushner said.

Developing a Stronger Counteroffer

Despite generating mixed reviews, counteroffers remain popular. Employers can take these steps to ensure that they are making the strongest possible case for keeping an employee:

1. Provide structure.
Counteroffers should not be made on the fly. Instead, they should be grounded in an agreed-on policy or set of guidelines. However, a 2017 study of 120 large and midsize companies by Korn Ferry Hay Group found that only 3 percent of the companies surveyed had a formal policy for making counteroffers. To make counteroffers more consistent, Masterson recommended that employers create some guidelines, such as limiting pay increases to a percentage of the employee's current salary. "This can ensure fairness while also not taking too many resources away from the department or the company overall."

2. Keep it quiet.
Employers should not make counteroffers to just anyone. Instead, evaluate the wisdom of making a counteroffer based on factors such as the employee's performance, value to the organization and how the departure might impact the organization's succession plan.

An employer that becomes known for making counteroffers too frequently risks having employees look for new opportunities simply to gain negotiating leverage. "It is important that employees assume that the company is inflexible" when it comes to making counteroffers, even if the company maintains a "back door" for counteroffers for its most valuable employees, said Mike Cox, president of Cox Innovations, a human capital consulting firm in Houston.

3. Address the real reasons an employee wants to leave.
Employers must consider why the employee is leaving and whether a counteroffer will cause this employee to stay—and for how long. To that end, counteroffers can also focus on better career opportunities, improved work/life balance, and changes to noncash rewards like vacation days and opportunities for training and continuous learning. The key is to look for ways to improve what the organization can offer an employee rather than just increasing cash compensation to match a competing offer, Cox said.

4. Decide if it's worth it.
Making a counteroffer is ultimately a judgment call. Retaining a valued employee even for an additional year or two can give the organization time to develop emerging talent or focus recruitment on increasing its depth of talent in key areas. That alone can make any counteroffer appear to be a bargain.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Articles:

Extending Counteroffers: Savvy Move or Losing Gambit?, SHRM Online, May 2018

Using a Job Offer as Leverage Is No Longer a Big No-No, SHRM Online, May 2016

Stay-Put Counteroffers Can Backfire, CFOs Say, SHRM Online, June 2015