Counteroffers for Retention: Worth Doing or a Waste of Time?

It’s a real blow when valuable workers hand in their 2 weeks’ notice. Whether you had your suspicions or the resignation came out of the blue, you feel like you have to take action pronto—especially if those leaving are key players and have extensive knowledge of the company.
But recruiting and training skilled professionals takes significant time, money, and effort. To avoid these hassles, it’s not surprising employers have resorted to making counteroffers for years in order to retain employees. But is that really a smart move? Let’s look at some data points.
The Creative Group recently surveyed about 1,000 workers, and of the respondents who have been presented with a counteroffer, 66% said they accepted it. This finding might seem like proof positive to use this retention strategy, right? But dig a little deeper: 13% of those employees later regretted the decision. In addition, a separate survey found that 38% of professionals who accepted a counteroffer wound up leaving within a year anyway.
Here are other reasons counteroffers are not a permanent fix:

1. You start having doubts about them. When employees tell you they’ve accepted another employer’s job offer, that’s pretty clear proof they don’t care to stay with your company. So, if a financial counteroffer tempts them to stay, it’s only normal to question their loyalty. This doubt puts strain on the employer-employee relationship. Is it worth keeping them on, hoping they’ll switch back their allegiance? Have they already mentally detached and are ready to move on? And just because they accepted the counteroffer, does that mean they won’t look for another position with an even higher salary?
2. More money seldom addresses the root problem. People leave for a variety of reasons. Maybe they were offered their dream job, or their long daily commute was wreaking havoc on their work/life balance. Perhaps they didn’t get along with their boss or colleagues. If they don’t see a clear in-house career path, they could be jumping ship to get ahead. Their decision may have something to do with salary, but that’s often not the main issue. After all, if they really loved their job and wanted to stay, they could have asked for a raise. Regardless of why they chose to leave in the first place, a higher salary likely won’t get to the bottom of their discontentment. Unless you can address the primary concern, like career advancement opportunities, a more flexible work schedule, better workload, etc., the employee will be itching to leave again shortly.
3. Counteroffers set a bad precedent. Employees talk. If or when word gets around that management gives out significant raises to keep people around, guess what your other workers are liable to do next? You face the potential scenario of a series of resignation threats, followed by hard bargaining and the possibility of a skewed budget structure. Unplanned expenses are a headache no manager wants or needs.
4. Productivity and morale could dip. Once workers realize their boss is desperate to keep them on board, they might start to feel entitled—which won’t motivate them to work harder or better. What’s more, other team members would resent it if certain colleagues receive special treatment just because they had another job offer. Two of the top drivers of workplace happiness are feeling appreciated and being treated with fairness and respect. Perceived favoritism does not contribute to these sentiments. Once morale heads south, you could face a mass exodus.

A Better Approach to Employee Retention

While it may be worth addressing nonfinancial concerns with an employee to try to persuade him or her to stay, it’s always better to be proactive than simply reacting to challenges that come your way. Here are some wiser ways to keep your top employees from leaving:

• Invest in their career with training, professional development, continuing education, and tuition reimbursement.
• Check in regularly. Discuss their in-house career path so they don’t feel they’re in a dead-end job. Also consider conducting stay interviews, during which you ask employees to evaluate the organization.
• Promote from within whenever possible.
• Acknowledge their productivity and dedication. Some ideas: positive feedback, thank-you notes, public kudos, spot bonuses, and tokens of appreciation.
• Offer flexible scheduling options, such as working 4 10-hour days a week or the ability to telecommute part time or full time.
• Increase salaries annually both to keep up with the cost of living and to stay ahead of your competitors.

One of a business’s top goals is to keep key employees happy and productive. In your toolkit of retention strategies, the counteroffer is a blunt instrument. It occasionally works. But more often than not, it’s a short-term fix that causes more problems than it solves.

Diane Domeyer is the executive director of The Creative Group, a specialized staffing service placing interactive, design, marketing, advertising and public relations professionals with a variety of firms. Robert Half, parent company to The Creative Group, offers annual Salary Guides, which contain salary information for a range of positions that you can adjust for your local market.