HR Management & Compliance

Should You Make a Counteroffer When an Employee Leaves?

When an employee comes to you with the news that he or she has gotten a competing job offer and is about to give his or her notice and take the new job, what is your reaction? Do you always let the employee walk away without further conversation? Does the answer change depending on whether this is a key employee? Do you make a counteroffer in the hopes of retaining the employee?

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Many companies tackle this issue on a case-by-case basis, and there are certainly merits for doing so. Let’s take a look at some of the reasons employers make counteroffers, as well as some of the risks in doing so.

Why a Counteroffer Might Be a Good Idea

Here are some of the arguments for making a counteroffer in the hopes of retaining an employee:

  • The cost of finding a new employee is more or less guaranteed to be significantly more than the cost of the increased pay or benefits in the counteroffer.
  • Even without considering the cost, in a low-unemployment environment, it often takes a long time to fill a vacant position—something that many employers wish to avoid altogether when possible, especially for high-performing employees.
  • Keeping a high-performing employee onboard may stop him or her from going to a competitor.
  • When good and/or long-term employees leave, they often take a lot of institutional knowledge along with them. It may make sense to pay more (or offer something else to keep the employees onboard) to avoid this situation.
  • If an individual is working on a project that could likely fail without him or her (such as one that is due too soon to find a replacement), it may make sense to make a counteroffer, even if you would not normally do so, to ensure business continuity for the customers involved or for project completion.

Reasons a Counteroffer May Not Be a Good Idea

Conversely, here are some of the reasons a counteroffer may not be a good idea:

  • Often, when an employee is job searching, pay is not the problem—or, at least, not the only problem. When making a counteroffer, pay is often addressed, but unless the other issues causing the employee to start searching are also addressed, the organization is likely to lose this employee in a short time frame anyway.
  • If the employee accepts the counteroffer and word of the situation gets out, other employees may feel resentful, and it may create problems in working relationships.
  • Other employees may get the idea that getting a counteroffer is a good way to get a raise themselves.
  • If other employees hear about the counteroffer, it may create a situation in which other employees start to feel that they’re underpaid, too. More employees may feel unhappy about pay (or more so than they already were).
  • The situation may escalate if the individual tells the other organization. The competing organization may make a counteroffer, as well. It could become expensive quickly.

Does your organization have a policy on making counteroffers? Is it something that is done on a case-by-case basis or not done at all? What are the reasons behind the decision?