Is a counteroffer counterproductive?

With 1 in 9 jobs vacant, open vacancies outstripping unemployment and employee turnover at exceptional levels, many managers and HR teams will be utilising counter-offers to retain valuable talent that is considering an external move.  Counteroffers will typically mean pay increases, one-time bonuses or promotions.  Given the challenges of hiring external talent and the inevitable lag between a leaver and a new joiner, are counteroffers a valuable tool to retain talent or a potentially costly gamble?

This article from HBR explores the potential pitfalls – the risk that a counteroffer will fail to address the underlying reason for an employee resigning, that the line manager may appear to be undermined or that team morale may be impacted if the team learns that the threat of resignation can be used to negotiate better terms.  Most insightful is the assertion that ‘50% of candidates who accept a counteroffer are back in the marketplace looking again in two months’.  So as well as the potential pitfalls of counteroffering it seems that it’s a 50/50 bet whether the retained employee will remain.

We have all heard the adage that employees don’t leave companies they leave managers.  If this is the case should we assume that the manager has failed at the point that an employee threatens to resign?  Presumably had the manager better developed and valued the employee then they wouldn’t be considering leaving in the first case?  I think there may be some truth in that statement although we should recognise that managers can’t be wholly accountable for developing and retaining employees, companies and HR specialists certainly have a role to play. 

As I wrote in a previous article (we need a new approach to internal hiring), internal hiring methodologies are woefully inadequate if we wish to proactively retain, develop and progress existing talent.  In that article I shared research that showed that only 40% of those leaving jobs claimed that it was easy to find internal opportunities and only 17% felt that their organization encouraged them to move internally.  So should we blame employees when they are tempted by external opportunities given that they’re far more likely to be approached for an external opportunity than an internal one?  In a job market as hot as it is today we shouldn’t be in the least bit surprised.

In the current market and with inflation and the cost of living soaring it’s no wonder workers are tempted by higher salaries, particularly given that an external job offer is likely to offer a salary increase significantly higher than an annual pay increase for a retained employee.  So should we utilise counter-offers as a retention tool?  I would argue that we should do so sparingly and with due consideration to the risks highlighted by the HBR article.  And understanding that half of all employees that accept counteroffers subsequently leave, I would strongly suggest that Hiring Managers, when utilising counter-offers, begin searching proactively for a long-term replacement as soon as possible.   

In the meantime let’s focus our efforts on how we better value, develop and progress internal talent to negate the need to counteroffer.