March 14, 2014

Do Counter Offers Really Work?

close up of man hands holding gift boxWith the Hay Group predicting that worldwide employee turnover levels are to surge, staff retention has thrust its way to the top of the agenda. It’s no surprise that we are seeing a rise in counter offers in many sectors as employers scramble to retain talent. For example, a recent Robert Half Legal survey charted sharp increases in “willingness to counter offer” and a recent survey by Finance Recruiter Marks Sattin charted sharp rises in counter offers in the accountancy and finance profession.

Despite the obvious persuasive value of counter offers, some detractors suggest that counter offers don’t work. I’ve seen some statistics thrown around that suggest that 50 percent of people who receive counter offers leave in two years, but I’ve seen another survey by leadership IQ that says 46 percent of new hires fail within two years anyway; so, employees saved via counter offers honestly do no worse than an external replacement. In fact, one study has shown that internal candidates categorically outperform external hires to similar roles.

So, as a general strategy, counter offering is the right approach and is no worse than hiring a replacement, but there are several steps to take to ensure that you counter offer effectively.

1. Try to find out the main reasons the employee wants to leave, e.g. lack of career options, lack of a challenge, not enough money, issues with the culture, etc., and address this in your counter offer. Can you give them the opportunity to expand their role, or have some more training? If you don’t address the underlying issues, your counter offer won’t work in the long term as the issues and feelings of wanting to leave will soon resurface.

2. Try to avoid busting your pay structure to match an offer. Clearly, if you offer more than the internal going rate to keep a candidate you could upset existing staff and open yourself up to a whole spate of pay rise requests.

3. Try to avoid giving something for nothing. Remember, you have the negotiating advantage as the current employer as you know the candidate much better and have greater access to him or her; so, don’t roll over and blindly match the offer. Offer the person more money, naturally, but try and tie this to an appropriate increase in duties or responsibilities. For example, a sales person might accept an increased sales target, or a project manager would scale up and start working on bigger projects. Make sure the counter offer contains something new, novel and exciting. This means you can use the offer to revitalize and re-engage the employee. Also, attaching caveats to the counteroffer will help to deter copy cats and ‘chancers,’ as they’ll know that even though the person had a pay rise, he or she has to work for it.

In truth, if you can’t fulfill most of these conditions, you might want to question whether a counter offer is the most prudent strategy as the chances of it working long or even medium term are slim and the chances of it disrupting other staff in the short term are high. But, done well, counter offers really do work.

Read more in Retention

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.