Beware the Urge to Counter Offer

184792973Losing a key employee can spell misery for anyone who runs a recruiting firm. It can be a nightmare to try to replace that person’s knowledge and skills. But beware the temptation to make a counteroffer to keep that employee on board, since that approach often backfires.

The typical scenario is that your employee hears about a job opening that includes a large pay hike, applies for the position and lands it. He then approaches you with a proposition that, in effect, says: “I won’t jump ship in exchange for an even higher raise.”

Most managers wouldn’t accept such a proposal, and many would fire the employee on the spot, according to a survey of more than 80 personnel executives and recruiters. Even when a counteroffer is proposed and accepted, problems often follow. More than 50% of all employees who accept counteroffers change companies within the following 24 months, reports the survey by a Pittsburgh staffing firm.

“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,” says Arlene Hirsch, a Chicago career consultant. “Your motives will be suspect from that point on,” she says, since your boss will wonder whether your resume is still on the street.

The Kiss of Death?

Most managers 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,” says Atlanta executive recruiter Larry Tyler. “Once you show that you’re willing to leave, you become the person who’s always blamed when something goes wrong,” he says. “It’s a tough stigma to overcome.”

The survey bears out that career progress can grind to a halt for those who accept counteroffers. A staggering 80% say that relationships with co-workers deteriorate and productivity falls among employees who agree to stay; 70% add that counteroffers are perceived by employees as a short-term cure for a long-term problem.

While the practice earns little respect, most companies admit to using counteroffers from time to time as a retention tool. According to the survey, 60% of the managers and recruiters questioned say they would never personally accept a counteroffer. Yet 90% acknowledge having made counteroffers on behalf of their companies, although they say they don’t like the practice of raising salaries and titles just to maintain the status quo.

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“Our theory is that anyone who can get another job can also get more money,” says a vice president of staffing and employee relations at a New Jersey-based Fortune 500 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, say 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 says.

“When an employee tenders a resignation, an astute manager will ask, ‘What are they offering you?’ At this point, the auction process begins,” Hirsch says. “The question ceases to be one of career development and becomes one of material enticement.”

How Companies Respond

Although human resources 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,” says a human resources director in Redmond, Wash. “We’ve changed opportunities and responsibilities for people which may or may not affect salary,” he says. “Some stay, but many don’t,” because despite company efforts to retain them, their reasons for leaving don’t change, he says.

A few firms 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,” says the New Jersey HR director, adding “I don’t like counteroffers either personally or as corporate policy. There usually are reasons besides money why managers 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,” he says.

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 other executives here who might be tempted into the market by more money,” says the New Jersey director.

On other occasions, counteroffers are rationalized. A lot of 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, says Ms. Hirsch. “That doesn’t happen often, but it happens.”

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,” says the HR director.

Occasionally a counteroffer, even one offered belatedly, fulfills a need for all involved. One supervisor accepted a job 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, says the HR director. “The small company had a hard time trying to replace him given his excellent track record, and he was a young single guy who had formerly lived in another state. 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.

MORE: Do you have a plan to retain top talent?

Tony Lee

Tony Lee
Tony Lee is chief alliance officer of Adicio, and publisher of CareerCast and the Jobs Rated report.

Tony Lee

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