Do Counteroffers Work?
Your top producer—or worse yet, a key department head—just dropped a bomb: two weeks’ notice and an offer from another company. How do you respond?
As the job market heats up and the talent pool tightens, it’s tempting to counter-offer. There is some evidence that more companies are doing this in recent years. The question is, does it work?
In the short term, possibly. Unless your organization is seriously strapped for cash, forking over an unplanned raise might be a smart move. You at least defer the costs of making a hire, which easily can add up to more than the raise.
In the long term, counter-offering as standard operating procedure is not a good strategy. If you feel you must do it as a one-off, at least see what you can learn from it.
Your first step is finding out why the employee is leaving. Hint: it’s not always about the money. Sometimes it’s lack of opportunity, perceived or otherwise. Sometimes it’s simply boredom.
Schedule a time to have a meaningful conversation with your employee. Make sure you listen more than you talk, and be open to criticism. It’s a good opportunity to learn things about your organization that can help reduce future churn. You also might glean insights into perks a competitor is offering.
Moving forward, vow to include this type of discussion in the annual performance review. It could eliminate the need to consider figure counteroffers.
Other ways to sweeten the pot
You’ve found out after your talk that it is about the money, but the money just isn’t there. Look around for other goodies you can dangle.
Extra vacation time or a partial telecommute might do the trick. Consider a flexible schedule. If your company buys fleet fuel, letting employees gas-up at cost is a nice perk.
Ask how you can make it more workable for the employee to stay with the company. If she’s struggled for years to finish a master’s, offer time on the clock to go to class. Is he juggling caring for children or a parent with work? Consider dependent-care assistance—even the IRS says this one is OK.
Be careful, though: any time one employee’s pot is sweetened, others will queue up to get some sugar added to theirs. Don’t offer deals you can’t afford to scale across the workforce.
The interim fix
It’s rare, but there are situations where losing a key employee would be—if not catastrophic—at the very least painful in the short term. Companies that are short-staffed or haven’t adequately cross-trained make themselves vulnerable.
In these cases, definitely make the counteroffer. It gives you time to better situate yourself for the employee’s eventual departure. Oft-cited statistics indicate that it will happen within a year, but the origin of those numbers is hard to nail down. Many times the vague references are passed on by recruiters—their incentive to discourage counteroffers is obvious.
Go ahead and throw money at the problem if you must, but it’s not effective in the long run. The employee knows she’s likely just getting an advance on a raise she’d get eventually anyway. Coworkers will soon have recruiters on speed dial, looking for an offer so they can get a counter.
Your better play is to talk with the employee in enough depth to determine what you can do to make your company a better place to work. You might or might not keep this employee, but if you act on what you learn, you’ll increase your chances of having to roll the dice on a counteroffer in the future.