Should you Make a Counter Offer to Retain a Key Staff Member?

Pensive business man with two oversized red jigsaw puzzle pieces in officeMany firms will face the situation when one of their valued employees walks into the office and says they are leaving to take up a job with another employer. The question is, what do you do? Should you make a counter offer? And if you do make one, how should you do it?

One of the main stats to guide your thinking is the one uncovered by Bill Humbert in his study, which is that 69 percent of employees who accept a counter offer leave their current employer within six months of accepting that counter offer. The problem is that a counter offer often only addresses the employee’s concerns in the short-term and can simply act to postpone rather than cancel the inevitable exit. So, in short, counter offers don’t really work in the long term or even medium term.

Is the employee really irreplaceable?

Another area to focus on before becoming overwhelmed with panic at the loss of this employee is what are the real consequences of this employee leaving and how quickly can his or she be replaced?’ I mean, could the employee be replaced in a reasonable time with an equal or better performer, at a comparable, possibly even lower pay rate (if internal inflation is out of control)?

Over the 12-month period do you think you can realistically engineer a situation where you have similar output and a lower/similar payroll bill as a result of your new hire and letting this one go? If so, then you may feel that a counter offer is not essential and you might consider easing the employee’s path to exit by not counter offering.

Remember, employees have to leave some time; statistics show that the average employee might hold up to 10 jobs in a lifetime, so you might want to be a little philosophical about it if the employee has served well above your firm’s average tenure.

Don’t make a knee-jerk counter offer

So, clearly, the message here is that you do need to be selective about who you counter offer, and ideally, you should base it on your ability to replace the talent in a reasonable time and the impact of this change over a 12-month period. This is a great way to make a long term considered, commercial decision without getting mixed up with the personalities and minutiae of each individual situation.

Always ask for evidence of the job offer

I’d also recommend that you only contemplate a counter offer once you have written proof that a job offer has been made, be that email or print. Insisting on this will, of course, ensure authenticity but will also slow the process down giving you time to regroup.

Counter offers don’t always have to be about “the money”

Also, remember if you do decide to make a counter offer, that it does not have to be financialor least all financial. You should have some idea of the employee’s all round frustrations and motivators, be that lack of career progression, boring job, wanting to work more flexibly, etc. Talk to other managers and review the employee’s appraisals to make sure to understand his/her key motivators. Is he/she a new parent and looking to work more flexibly or somewhere closer to home? Then build a tailored counter offer that addresses all his/her needs and not just financially. In fact, you might not even choose to make a financial counter offer at all if you think the proposed situational changes could prove an attractive enough retention tool.

So, in my opinion, it can be right to make financial counter offers but only as part of a holistic approach, which looks to address both the short and long-term needs of the employee. Otherwise if you do make cash counter offers without addressing all the employee reasons for wanting to leave, once the ‘anesthetic effect’ of the pay rise wears off the employee may start feeling the pain again and look to leave again.

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Kazim Ladimeji
Kazim Ladimeji is a Chartered Member of the Chartered Institute of Personnel and Development, and has been a practicing HR professional for 14 years. Kazim is the Director of The Career Cafe: a resource for start-ups, small business and job seekers.