One Foot Out the Door: When Are Counteroffers Worth Considering?
Workspan Daily
June 30, 2022
Counteroffers
Key Takeaways

  • Select your strategy. Counteroffer approaches will vary by organization, but there are three broad types of counteroffer strategies that organizations adopt: ad-hoc counteroffers, planned counteroffers and no counteroffers.  
  • Keep it consistent. Developing a set of criteria that considers when a counteroffer is justified will create a more consistent and fair process for counteroffers.  
  • Consider other roles. Organizations considering counteroffers should weigh factors such as whether they can change the employee’s position within the company. Many employees begin looking for a new job due to a lack of opportunity to grow and take on new responsibilities with their current employer.   
  • Salaries aside. Managers have the most dramatic impact on employee retention. Enabling management to effectively provide performance related feedback and clearly articulate career paths and development opportunities can significantly improve employee retention and engagement.   

The compensation professional’s role is to support the organization’s efforts to recruit, retain and engage employees. As most companies have observed, the retention piece has become more difficult than ever before. As employees turn in their two-week notices en masse, management is desperately looking for ways to stop the loss.   

One of the fastest and seemingly most simple solutions is to provide counteroffers. After all, if you have a problem that money can solve, do you really have a problem? As it turns out, employee retention is not so simple and counteroffer as part of that retention strategy have limitations. 

Counteroffer strategies will vary by organization, but there are three broad types of counteroffer strategies organizations may adopt: 

Ad-hoc Counteroffers

Ad-hoc counteroffers are common in those organizations that do not have a formal (or informal) strategy. Having no policy or strategy around counteroffers provides flexibility, but it may create pay inequities and drive a culture where employees believe the only way to earn more money or receive a promotion is to hold the organization hostage.   

Planned Counteroffers 

One approach that organizations should consider is to adopt a proactive approach to counteroffers. When developing a proactive counteroffer strategy, the business may consider the following, among other items:  

  • mission critical roles, 
  • high-performers or high-potential employees, 
  • salary or range penetration thresholds, 
  • employees with poor (low) internal equity considerations, and 
  • when the employee can be transferred to another team or project.

Developing a set of criteria that considers when a counteroffer is justified will create a more consistent and fair process for counteroffers.   

No Counteroffers

Many organizations simply decline to make counteroffers, with some taking the cynical view of an employee requesting a counter-off being equivalent to a hostage negotiation. While a hardline, no-exceptions policy ensures fairness across the workforce, it removes what may be a potentially effective tool from the line manager’s arsenal of tools.  

Further, organizations that view an employee submitting a counteroffer as “holding the business hostage” may signal that it is not safe to have honest conversations about work satisfaction and career aspirations, and it may result in the dismissal of key employees.   

Weighing the Options  

If your organization is considering the first or second option (ad-hoc or planned counteroffers), it is important to weigh a number of factors, such as whether you can change the employee’s role.  

Many employees begin looking for a new job due to a lack of opportunity to grow and take on new responsibilities within their current organization.  

Once an employee has gone through the process of the job search, attending interviews and (possibly) accepting an offer, a larger paycheck may just provide a distraction to the core issues that led the employee to begin seeking employment elsewhere. 

Also, think about whether you can change the employee’s team or manager. Employees don’t leave a company, they leave managers, or at least that’s how the story goes. Research suggests that supervisors that are perceived to support the well-being of their direct reports see significantly lower attrition rates. 

For that matter, how long is this employee likely to stay even if they do accept your counteroffer? Data suggests that many employees who do accept a counteroffer wind up leaving before too long anyway.  

Still, there are situations where more money may directly address the issue driving the turnover. For example, a counteroffer might be appropriate when an employee is paid significantly less than their internal peers or well below the market.  

When it comes to employee retention, an ounce of prevention is worth a pound of cure and employee retention begins with the manager. Each employee and situation are unique, and there is no one-sized-fits-all approach to retention.   

Ensuring that leadership can effectively communicate the organization’s value proposition to employees must be the first step. HR, the compensation team and others must provide proper training and education to managers.   

As the first line point of contact, managers will have the most dramatic impact on employee retention. Enabling management to effectively provide performance related feedback and clearly articulate career paths and development opportunities can significantly improve employee retention and engagement.   

Related WorldatWork Resources
Seize the Workplace Equity Moment
Four-Day Workweek Experiment in UK Shows Positive Early Returns
Virgin Atlantic Announces New Gender Policy
Related WorldatWork Courses
Understanding Pay Equity
Quantitative Principles in Compensation Management
Geographic Pay Strategies