According to research commissioned by specialist recruiter Robert Half, making counteroffers in a bid to retain employees is standard practice in business, with 94 per cent of company CFOs admitting to using this tactic.
However, this tactic is proving ineffective in the majority of cases, with two-thirds (66 per cent) making counteroffers to employees that ended up leaving the company anyway.
“Counteroffers are often an immediate reaction to a skilled employee resigning, however offering a purely financial incentive to remain with the company rarely works. It can be a very costly way to delay the inevitable,” says David Jones, senior managing director at Robert Half Asia-Pacific.
Why are counteroffers failing?
There are likely two reasons why counteroffers are not hitting the objective of retaining key personnel.
Mr Jones suggests that the practice may actually be counterproductive, as it instils a particular culture into a business that counteroffers are a standard part of the salary negotiation process.
“Counteroffers set a precedent within any business, undermining trust and morale in the long term,” he says.
“Business leaders will send a message to staff that, unless they threaten to resign, their pay rise request won’t be considered. Some may even look around at other jobs merely to be able to renegotiate their employment terms.”
He also suggests that higher salaries do not always translate into better performance, and in some examples, the reverse can become true if employees feel they are indispensable.
The alternative reason, however, comes down to not only the offer itself, but the overall culture and working conditions within the business.
If an employee is looking for new opportunities outside your business, it could be that they are unsatisfied with their current job, conditions, pay, colleagues, managers, culture or other factors.
In such instances, it is unlikely that a counteroffer of a higher salary will satiate this need for change or improvement, and such factors which have led the employee to seek alternative in the first place will not be addressed.
What can employers do to retain quality workers?
The crucial point for employers, suggests Mr Jones, is not to wait until you are faced with an employee departure to take action.
“With the war for talent and companies actively poaching top employees from competing organisations, business leaders need to proactively address their staff retention measures and not wait until one of their top performers wants to leave the organisation. It’s too late then,” he says.
“Managers need to check in frequently with their employees to make sure they’re challenged and satisfied with their career path, as well as regularly assess salaries to ensure compensation is fair.”
It’s also important to keep this dialogue open once an employee has accepted your counteroffer to stay, to ensure you address the core issues that have led to them looking externally.
Finally, be sure to keep up your end of any counteroffer proposal. Higher salary is one thing, but non-monetary offers such as perks, culture changes, working flexibility and further training/career advancement can easily be overlooked once the negotiations are completed.
Doing so generally leads to just one result: the employee in question will be left with an even greater desire to move on if it looks like you don’t keep to your word.