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How to Navigate Counteroffers as an Employer

After several rounds of interviews and assessments, the perfect candidate has accepted your job offer for a hard-to-fill position and handed in his resignation at his current employer. A week later the candidate calls back stating that his current employer has made a counteroffer —or worse yet —the candidate just disappears completely and stops returning your calls and emails. In the recent market of plentiful jobs and candidates in short supply, counteroffers and ghosting have become all too familiar for HR and TA professionals.

Candidate Ghosting: What Is It, Why Does It Happen, and How Can You Prevent It?

What is a counteroffer?

A counteroffer is an offer made by the employer in response to an employee’s resignation announcement.  A counteroffer is used as a negotiation tool to help entice the employee to stay.

Why are counteroffers on the rise?

So why are counteroffers so prevalent in today’s market? Let’s look at it from the employer and employee perspective.

Employer: With a limited talent pool in high demand and a severe labor shortage, attracting and retaining talent is extremely costly and time-consuming. When a valued and highly skilled employee hands in a resignation letter, the employer often questions the amount of time it will take to replace the employee and how business will be impacted in the interim. The job market operates according to the laws of supply and demand and it’s often more convenient for the employer to offer a pay raise to a departing employee than to find a replacement.  According to research by Change, it can cost as much as 213% of a senior executive’s salary to find a replacement. A study by SHRM, found that employers will need to spend the equivalent of 6 to 9 months of an employee’s salary to find and train their replacement.

Employee: Today’s candidate-driven market is the perfect time for professionals to advance their careers and shop their worth. Employers are struggling to find and hire great talent and as a result, they are offering increased pay and perks. Average weekly earnings have risen 4.5% over the last year. Some professionals go through the entire interview process with one goal, to get a counteroffer to present to their current employer. This presents the best of both worlds for the employee—an increase in pay without having to go through the upheaval of changing jobs.

Who benefits from counteroffers?

Counteroffers are not beneficial to the employer or the employee in the long term.  Here’s why:

Employer: According to research by SHRM, about 57% of all employees who accept counteroffers change companies within the following twenty-four months. The counteroffer may help in the short term, but there are often other reasons an employee wants to leave beyond money. The counteroffer may speak to the financial issues, but it does not change the underlying circumstances that spurred a job search in the first place. According to a recent Forbes article, 34% of employees said that corporate culture was the main reason they were looking for a new role,  92% said they would be more likely to stay if their managers showed more empathy, and employees are 59% less like to seek out a new job if they feel engaged. As an employer, you should always avoid the temptation to offer a counteroffer when an employee resigns. Holding on to an unhappy employee that feels undervalued only provides a band-aid by delaying the inevitable.

Employee: It takes guts to quit a job. Leaving one’s comfort zone and stepping into the unknown is not easy. Therefore, when a current employer offers an employee more money to stay, it’s tempting to stick with the status quo. Here are some reasons why it’s not in the employee’s best interest to accept a counteroffer.

  • A counteroffer most likely won’t change anything at your current job in the long term. The underlying circumstances of your search for new employment will remain.
  • An employee that takes the counteroffer runs the risk of losing the employer’s loyalty and trust. 80% of senior executives cite diminished trust in employees who accept counteroffers, according to a Harvard Business Review
  • Employees that accept a counteroffer have been found to feel like they have been bought rather than rewarded which could affect morale and the feeling of belonging.

How can you avoid counteroffers?

Below are a few ways your organization can be proactive and avoid counteroffers altogether.

Use good resources to determine the appropriate salary: Use reputable data and methods to conduct a compensation analysis. This will help to ensure you are offering competitive pay within your local market and decrease the chance of an employee shopping his or her worth.

Take a look at your corporate culture: Employee retention relies on a combination of factors—salary plays a role in employee retention— but it is not the only reason employees leave. Do your employees feel engaged and valued? Do you offer flexible working arrangements, professional development, and advancement opportunities?

This blog was written by Broadleaf’s Senior Vice President, Client Delivery Suzie Mitchell.

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