Should you use an employee counteroffer to retain talent?
Should you use an employee counteroffer to retain talent?

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Should you use an employee counteroffer to retain talent?
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26/05/2022
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You’ve heard the term ‘The Great Resignation’, and unfortunately it is here to stay. Employees are demanding better working environments, more flexibility, better culture, better systems, more responsibility, more money … more everything. Talent will continue to reassess their employment opportunities now and into the future. One way of retaining staff is by offering an employee counteroffer. But is it going to cause more harm than good?  If people are ready to move on, is the best decision to just wish them well in their next opportunity?

What is an employee counteroffer?

A counteroffer is improving the terms of employment for an employee threatening to leave your business. This could be in the form of improved work arrangement, a payrise and or a promotion with more responsibility.

Why do businesses use employee counteroffers?

During the Great Resignation, many Australians have said “I quit” and moved on from their current roles. In this job market, employees continue to hold a considerable amount of leverage while leaders scramble to backfill roles and find talent with the needed skillsets. Business leaders are often prepared to do just about anything to keep top talent from walking out that door – especially in industries where the talent pool is limited.

The counteroffer is one retention tool at leaders’ disposal. In fear of losing an employee, a leader may counter with a promotion, a merit increase, a one-time bonus, equity grants, or an opportunity to move to another team. The idea of the counteroffer may make a leader temporarily feel like they’re back in control of the situation and that they’re making the best decision for their team and organisation.

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Should you use an employment counter offer?

Business leaders need to be aware of the perceived power of the counteroffer. Based on my experience leading teams, there’s a number of downstream consequences you likely haven’t considered if the employee accepts. Here’s why making a counteroffer to an employee who has resigned can do more harm than good.

It likely doesn’t address the underlying issues.

Ask yourself if the counteroffer addresses the reasons the individual resigned in the first place. Do you think the offer will keep them happy and thrive on your team? Or does it serve as a temporary fix to avoid dealing with a bigger problem?

“If you extend a counteroffer to an employee, it should be well thought through and not just a moment of desperation to hold onto talent,” says Jill Katz, founder and chief change officer of Assemble HR Consulting.

Katz continues:

An employee counter-offer must make sense for the company and the employee. Consider whether this counteroffer addresses the reasons they resigned in the first place. Is it really about the promotion or the raise? Or is it about their excessive workload and their desire to manage more direct reports? Often, a counteroffer does not address the real reason why an employee is resigning. As a leader, it is your responsibility to find the root cause.

Katz warns leaders who use the counteroffer instead of having difficult or uncomfortable conversations. “If they accept the counteroffer, it’s very likely they will resign again in the future. Research shows that 50% of candidates who accept a counteroffer are back in the marketplace looking again in two months. The novelty of this solution can wear off and they can be a flight risk. And then you are back in the same spot looking for talent again.”

It may seed doubts about your leadership capabilities.

The outcome of a counteroffer can ultimately reflect your leadership abilities. It is counter productive to retain an employee after they have resigned if they are not set up for success.

For example in a counteroffer you may offer a promotion, but you must determine if the person is ready for it. Without additional support or training, you may set them up for failure. You must be able to defend your decision to human resources, your boss, and management. Poor performance will not only reflect poorly on the employee, but also on you and your ability to assess and coach talent.

Furthermore, if the employee cannot perform in the new role, they may leave the organisation by choice or be asked to do so. In either case, leaders end up with a similar result; result ends in an empty position on the team, and a tarnished reputation of your management skills.

It can negatively impact team morale.

Other team members will immediately know if the counteroffer is a promotion.

If a colleague unexpectedly receives a promotion or a new role with more pay when they weren’t in line to receive it, this can negatively impact team morale. It can cause gossip among the team, with (sometimes wild) speculation as to how and why it happened. It can also erode respect for the individual if others don’t feel they deserved the promotion and ultimately devalue it.

“What leaders don’t realise is how the counteroffer can backfire and have a ripple effect across the team,” says Felicity Hassan, talent advisor at Core Innovation Capital and board member for Women Business Collaborative. “It can be a driver for others to start looking outside the organisation, and then, you may be confronted with more resignations than you expected.” Hassan advises leaders to consider the impact of stopping one person from leaving versus focusing your energy on ensuring the rest of the team is energised by their work and aren’t flight risks.

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