What Employers Should Know About Counter Offers

When an executive or other top employee resigns, your first instinct may be to extend a counter offer to entice them to stay. Talent searches are time-consuming and costly, and turnaround negatively affects employee morale, especially in the top tiers of company leadership. While two-thirds of executives say employees usually accept counter offers, 78 per cent of CFOs say they do not extend counter offers as a practice. Here are some of the reasons why you may want to follow suit.

Setting the right precedent

One of the top reasons companies cite for not extending counter offers is the belief that it sets a bad precedent for other employees. It may prompt others to start their own job searches in hopes of receiving a pay raise, creating a "ripple effect” that could upset the whole pay structure. Even someone who is happy in their position can become resentful if they see someone receive a pay increase after threatening to leave. To avoid this situation, companies should review compensation levels on a regular basis to ensure they’re offering competitive salaries and benefits packages. Paid holiday time, flexible work arrangements, and other perks can go a long way toward keeping employees happy. 

Effective retention strategy or short-term gain?

More often than not, an employee who accepts a counter offer is back on the job market soon afterwards anyway. According to a study out of the UK, 60 per cent of those who accept counter offers are back on the job market within 6 months. A salary increase can’t always make up for their original reasons for leaving, provided those reasons were not solely related to compensation. If they are no longer feeling challenged in the position or they feel they’re not a good fit for the overall company culture, additional pay is unlikely to make them happy enough to stay. However, you might decide that you want to keep this employee until you are able to find a replacement - in that case, it could be worth it to reach a mutual, short-term agreement with the employee. This could also be a great opportunity to talk to the employee about what could be done differently on the company’s part. Then, work toward creating a culture where employees can bring forth these concerns before they think about leaving.  

Asking the wrong question?

Perhaps the question of counter offers is not the one we should be asking. Waiting until a top employee leaves to consider retention strategies is not ideal. So how can companies keep their top talent happy? Research shows that executives in particular stay longest with companies that provide growth opportunities. Even if they’ve already advanced to the top ranks of leadership, employees want to feel like they’re learning new skills and forming new relationships. Keeping employees engaged and compensating them fairly can help prevent the need for considering a counter offer to begin with.

Regardless of whether you decide to propose a counter offer, it’s important to keep the lines of communication open with a resigning employee. Make sure to thank them for their contributions to the company and ask them if they would be willing to help out with any issues that may come up after their departure. If you decide it’s worth it to entice them to stay on a while longer, be sure to learn all you can about how the company can work to retain top performers in the future.