Employers may be willing to up the ante with counteroffers to retain in-demand workers, but experts say it's not ultimately a winning practice.
"Understandably, you're eager to do whatever it takes to prevent key employees from leaving for the competition, and that may include tempting them to stay with a bigger salary," said Diane Domeyer, executive director of The Creative Group, a staffing firm for design and marketing professionals based in Menlo Park, Calif. "But more often than not, counteroffers are counterproductive. While your motivation is understandable, such efforts can cause more problems than they solve."
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Robert Half, the parent organization of The Creative Group, conducted a survey published this year and found that:
- 14 percent of executives said the number of counteroffers extended by their company has increased in the last six months.
- 37 percent said the main reason to issue a counteroffer is to avoid losing an employee with hard-to-find skills.
"It's tough to find—and keep—good talent in today's market," Domeyer said. "But counteroffers are rarely a good retention strategy, as they often don't address all the issues that prompted the individual to leave. For example, someone who feels she's outgrown her position and sees no career path in the organization may end up quitting a few weeks or months down the road, even if she's earning a higher salary."
Reasons not to make counteroffers include:
- Diminished trust. Executives' top concern in extending a counteroffer is that the employee will be less loyal to the company, according to the survey. And 38 percent of respondents said that employees who accepted counteroffers left within a year anyway.
- Culture damage, from colleague resentment and/or charges of favoritism.
- Bad precedent. Counteroffers can wind up being costlier than losing the employee after the message is sent that threatening to leave can result in a raise.
"Employees almost always find out that people who asked for counteroffers received their request, and it's generally a very negative situation that is perpetuated by others now that they know you will make counteroffers," said Jeremy Eskenazi, managing principal at Riviera Advisors, a Long Beach, Calif.-based talent acquisition consulting and training company.
Most counteroffers fail because of a misunderstood motive, said Scott Wintrip, the founder of the Wintrip Consulting Group and the author of High Velocity Hiring: How to Hire Top Talent in an Instant (McGraw-Hill, 2017). "If a financial counteroffer is the resolution to the core reason why an employee is leaving, then this works more often than not. However, the reason why counteroffers fail 80 percent of the time is that the problems that are prompting the exit remain unresolved."
When to Make a Counteroffer
There may be one good reason to consider extending a counteroffer: when the employee is considering, but hasn't accepted, another job offer.
"If the employee announces that they have accepted an offer, it's pretty much bad form to counteroffer, since what the employee is telling you is that he or she has already made their decision, they have already told the new employer they will accept their offer, and generally it's too late," Eskenazi said. "If you didn't already have an indication that the employee was unhappy with their role, position, compensation or other work-related issues, you probably weren't doing a good enough job communicating with the employee and checking in on their satisfaction with the job before they started talking to other employers."
On the other hand, if an employee indicates that he or she has received a new offer and has not yet accepted, but is taking the opportunity to talk about job-related concerns and request a counteroffer, that's another issue, he added.
"I think sometimes it makes sense to counteroffer, but it depends on the situation," said Paula Brand, a career consultant in Annapolis, Md. "If you can deliver their requests and/or change the situation that made them want to leave, it could be worth making a counteroffer, especially if the person is a high performer or in a critical role."
Employers who are successful in making counteroffers that stick have something in common, Wintrip said. "They maintain a culture of safe communication where employees feel safe to come to their boss to openly share concerns—including when they are thinking of leaving. I personally experienced this in my previous employment. Because it was safe for me to tell my boss I was thinking of leaving, we were able to resolve the issues that were prompting my job search."
Find the Root Cause for Leaving
So how can you retain your top talent in a job market that's desperate for skilled workers? You have to get to the root causes of why employees feel the need to leave.
"Sit down regularly with employees to make certain they're happy with their career paths and the professional development opportunities your organization provides," Domeyer said. This means conducting routine stay interviews that explore what will help employees remain with the company and contribute more effectively—not waiting for exit interviews to find out where they stand. HR should also ensure that a competitive salary is being offered, she said.
"After talking with the employee, you may discover there are things you can do, such as assign more challenging projects or provide greater scheduling flexibility, to make the person happier and more-engaged in the role," Domeyer said. "However, it's important to be honest with yourself and the employee about what you can and cannot do to remedy the situation. Overpromising on something like the opportunity to attend costly trainings and conferences that are out of your budget is never a good idea."
The Flip Side
Looking at the issue from the other side—coaching candidates on what to do if they get a counteroffer from their current employer—is something every recruiter should be versed in, Eskenazi said. "Really great recruiters almost always ask their candidates about how they will approach their current employers, and they coach them in how to resign and what to do if they receive a counteroffer," he said.
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