Should I make a counter offer to an employee?

Should I make a counter offer to an employee?

David Tuohy 26.10.2017

When an employee tells you they are leaving to move to another company, is it wise to make a counter offer?

It’s a reality of running a business or managing a team that over the years, people will come and go.  Sometimes that will suit you and sometimes it won’t. Typically, it won’t suit you if the individual:

  • is a significant contributor
  • is hard to replace
  • is working on a time-sensitive workload
  • is moving to a direct competitor
  • or was one of your team earmarked as part of the company’s succession planning

 

The question then becomes, “What can I do to keep them?” followed by “Should I even try?”

Should I make a counter offer?

To answer that we need to explore the likely outcomes if the person stays, explore the other options you might have to address the situation and identify when you really should make a counter offer.

If they stay…

This may surprise you, but the evidence is that the person will leave anyway within six to 24 months! I see this first hand, candidates that accept a counter offer from their current employer are often active again - even within three months. The reasons are simple, in the vast majority of cases none of the things that lead to the person to leave change after they accept a counter offer of increased salary.

The reality is that the reason why most people leave a company is not salary. That’s right, salary is not the main motivator.

"...employers who are conscious of the need to limit salary inflation, should consider the benefits of offering flexible work arrangements as a means to attract and retain talent.” 

- Tracy Keevans, Global FDI Director in the Morgan McKinley Working Hours Survey Ireland 2016

Career progression, a bad boss or working environment, a desire for more challenging work, an opportunity to join a high-profile company, work-life balance…all of these tend to come before salary. So, in the majority of cases, just giving a salary increase will not solve the problem – and may even cause other issues.

Issues such as: the person is likely to leave anyway; the salary increase may create an imbalance in the salary scales within the team; other team members may pressure you for an increase if word gets out; you may get a reputation in the market for overpaying – thus attracting candidates that are overly money motivated as well as effecting your cost competitiveness; your relationship with the person may never be the same - you might take it personally that they wanted to leave; and to repeat – they might leave soon anyway (and leave all that damage in their wake)!

Other Options

Of course, you have other options to encourage them to stay. The key here is to properly understand the person’s reasons for wanting to leave, de-personalising your reaction to this information, and being honest and realistic about whether those reasons can be addressed without the person leaving. The two most important questions to ask, before looking to propose any solution are:

  • Do you like this business?
  • Taking these immediate concerns out of the equation, do you see yourself having a future here?

 

If you don’t hear “yes” and “yes”, then shake hands and wish them the very best in the new role.

If both parties would genuinely prefer if a solution could be arrived at, then you can start to examine options like giving the person a role that better plays to their strengths or offers a fresh challenge; exploring flexible work hours; properly address communication or management issues that are negatively affecting performance or morale; hire a new junior to relieve workloads; outline the career progression path and where you see them in the next 2-5 years.

Effective communication and real action are essential for this approach to be successful – otherwise, the person will leave within 6-24 months. So, if you are making commitments that you know you can’t keep, don’t be surprised!

When to Counter Offer with a Salary Raise

Taking all of the above into account, no doubt you will still offer more money if you absolutely have to keep the person in the short term – because you don’t mind if they leave once they’ve closed out that assignment, met that deadline or you’ve found a suitable replacement.

Otherwise, you should be measured in offering a salary increase. Maybe the person is right, and their current salary and benefits are below the market rate. If this is the case, you need to benchmark your salaries and address this or you will start hemorrhaging staff in today’s highly competitive recruitment market.

Maybe the salary is just not sustainable for the person, in which case you need to assess the risk and longer term return on investment for the business in increasing their salary so that they don’t leave just because of money. If you believe they will have a big impact on the business in the future and you trust their motivations, and the information that they have given you, then you need to find a solution that allows them to stay.

Prevention Better than Cure

My advice is to take a view that you want the people in your team to excel while they are with you. Create an environment where people can excel and have open lines of communication, so small problems don’t become big problems.

If your best people can achieve their career goals in your business they will create and deliver value; if they need to leave to achieve their goals, then be glad for them and wish them every success.

David Tuohy's picture
Consultant | Accounting & Finance Recruitment
dtuohy@morganmckinley.ie