More employers resort to making counteroffers to retain highly skilled employees

Companies are upping the ante for employees to stay. (pasja1000)

Finding it increasingly hard to get and keep strong talent, companies are turning to a generally unwanted tactic: making counteroffers.

The approach can turn out to be a lose-lose proposition, but in this day of very high employment it is increasingly viewed as making strategic sense.

It creates an uncomfortable situation for CEOs and companies “because the loyalty of that employee no longer exists” no matter how good they are, Jessica Kuhl, vice president of the Permanent Placement Service arm of Robert Half, told FierceCEO.

Robert Half conducted a survey of the practice and found:

  • 14% of executives said the number of counteroffers extended by their company has increased in the last 6 months.
  • 37% said the main reason to issue a counteroffer is to avoid losing an employee with hard-to-find skills.
  • Executives’ top concern in extending a counteroffer is that the employee will be less loyal to the company.
  • 13% of workers who accepted a counteroffer regretted it.

“As unemployment rates stay low, we will continue to see counteroffers,” Kuhl said. “Demand for good employees is very high and employers are saying, ‘We don’t want to lose you because we know it will be difficult to replace you.’” 

Sentiment is mixed over whether counteroffers are the way for a company to go, however.

“Counteroffers are almost always a bad idea,” said Dave Arnold, president of search firm Arnold Partners. “People do not change jobs for money, unless they are grossly underpaid. People change jobs primarily because they do not like their boss, they do not feel challenged, they do not agree with the corporate direction or ethics, or they detest their commute.”

By retaining employees with only a cash counteroffer, “the majority of the time the employee will leave within a year,” Arnold said. “It is not good for the employee, as they lose the trust of their superiors.”

But there can be exceptions. “If you really get to the root of why the person is leaving and fundamentally change the circumstances of employment, it can be a mutually beneficial outcome,” Arnold said. “This is usually not the case, however. Companies are throwing good money out the window if they only counter with cash.”

“A counteroffer to an employee who has a bona fide offer from another employer is like a ‘Hail Mary’ pass in football,” said business author Don Maruska. “It's a long shot that reflects prior failures to keep the employee engaged and contributing.”

Counteroffers “are a symptom of other issues,” Maruska said. “Get to the root causes by being proactive with regular ‘stay’ interviews that explore your employees’ hopes and aspirations and what will help them stay and contribute more effectively. Don’t wait for exit interviews to find out where your organization stands and how to engage your employees more effectively.”

Jeff Reep, director of career services at Cedarville University, said companies should lean toward making a counteroffer.

“Retaining an employee is the most important thing you can do, especially if that person has been a strong performer,” Reep said. “It avoids the company having to go out and go through the whole recruitment process again.”

But questions should be asked, Reep said. “The company should ask why the employee is leaving. Is it just the money or factors like upward mobility?”

“If your employee is of real value to you, and you don’t want to lose them and the valuable skills they bring, you need to address whether or not a pay raise or title change will address their real issues,” said Joel Klein, president of IMBC. “Your offer can consist of terms that are not necessarily of monetary value: You can offer more PTO days, work-from-home days, or anything else that you can provide your employee that they were looking to find somewhere else.”

On the flip side, younger candidates undervalue their market worth, said a report by Hired. Candidates between 20 and 34 are asking for lower salaries than they end up getting offered, with the biggest disparity in the 20 to 24 age groups, which ask for a full $9,000 less than they’re offered, the survey said. But this flips at 35, when they start to receive a few thousand less than they ask for.