The global pandemic has led to a massive shift in how the employer-employee relationship works. For decades, the balance of power has tilted in favor of employers, and when an employee leaves, they take their fate into their own hands. Rarely would an employee be valuable or irreplaceable enough to warrant a counter-offer, and when they were, they largely didn’t accept.
Today, the balance of power has shifted. The so-called Great Resignation has seen hundreds of thousands of people resign, either for better jobs, career changes, or just to get out of the workforce after a lengthy career. Combined with an ongoing worker shortage, many businesses are now desperate to find and retain employees.
When faced with an employee who has decided to resign, you are given a choice. Do you let them go or try to keep them around? If you want to keep them around, the way to try is with a counter-offer.
What Is a Counter-Offer?
When an employee decides to resign, a counter-offer is an offer of an increase in their pay and benefits package to try to get them to stick around. In today’s environment, it’s not uncommon for a counter-offer to include as much as a 25% bump in pay and additional benefits, the most common of which is a shift to fully remote work.
The idea is that it’s cheaper to offer a higher salary and keep the institutional knowledge, existing relationships, and skills of your current employee over having to hire, train, and integrate a replacement. This is exceptionally difficult if the resigning employee has a great deal of institutional knowledge and no time or inclination to develop training materials, train a replacement, or otherwise ensure continuity when they leave.
Many businesses, used to employees sticking around despite unfavorable conditions, are now finding that their sway no longer holds and that shortcuts they have taken over the years (like not investing in redundancy or a company knowledge base) are imminent disasters waiting to happen.
Generally, if an employee is resigning, it’s because other avenues available to them have failed. They may recognize that they can earn a much higher salary or better benefits elsewhere and may have even tried to get those same benefits out of you before resorting to a resignation. After all, resigning and changing companies is a considerable risk for an employee. Any number of things can go wrong, leaving them without either job.
In some cases, an employee is using the threat of resigning to fish for more pay and better benefits. In these cases, a counter-offer can work to keep them around. However, most of the time, a counter-offer won’t be compelling enough for the long term.
Statistics About Counter-Offers
The unfortunate truth is counter-offers largely do not work.
Statistics back this up:
“70-80% of people who accept [a counter-offer] either leave or are let go within a year. Why is this the case? Usually for one of two reasons: employer distrust and continued employee dissatisfaction.” – Phaidon International.
“9 out of 10 candidates who accept a counter-offer leave their current employer within the twelve-month mark.” – RecruiterBox.
“50% of candidates that accept counter-offers from their current employer are active again within 60 days.” – UK Recruiter.
In most situations, a counter-offer does not actually address the problems that led to an employee deciding to leave. If the problem is a too-low salary or a lack of a particular benefit, then sure, it can work. However, if the problem lies with management, workload, company culture, or another issue, a counter-offer cannot solve the problem.
The Pros and Cons of Counter-Offers
First, the benefits of a counter-offer.
You can retain your talent, institutional knowledge, and relationships with existing employees.
The loss your business takes when an employee leaves can be immense, depending on how pivotal they were to their team, department, or the company as a whole. While some employees are interchangeable, others are indispensable. Keeping those critical employees around is exceptionally important, especially if their impending resignation draws into stark focus how unprepared your company is to survive their departure.
You save the money you would be spending to recruit someone to fill the position.
Recent statistics put the cost of hiring a new employee at around $4,500, though the variance in pay, benefits, and other influences can change this number quite a bit. Add to this the fact that hiring a replacement for the departing employee is likely to require a significantly higher salary, and your retention offer might be cheaper in the long run.
You prevent a competitor from poaching your existing talent.
Spite is a powerful motivator. Sometimes, you may consider offering a counter-offer to prevent your competitors from poaching your talent. Your loss being their gain can put them in a better position to compete with you, and that’s not a good thing. If the counter-offer can prevent the employee from jumping ship to a competitor, it’s beneficial to you and detrimental to the company that spent time courting them, only to fail at the last moment.
You may be able to realign employee fit to something better.
Consider this anecdote from SHRM:
“Less than a year after becoming office manager of a small testing firm in Chicago, Linda Sullivan was ready to quit. She believed her marketing skills were being wasted in an administrative position, and she felt underpaid to boot.
Linda’s next step was one duplicated by thousands of other unhappy employees each day: She revised her resume and started job hunting. After a few weeks, Linda received an attractive offer from another Chicago firm, which she quickly accepted. Then she made an appointment to tell her boss the bad news.
To Linda’s surprise, her boss was quite sympathetic. “I didn’t know you were unhappy,” he told her. “Why didn’t you come to me sooner?” The boss then explained how highly he valued her skills, and to prove it, he offered a change of responsibilities, a new title—director of marketing—and a $5,000 a year raise. Linda (not her real name) readily accepted the counter-offer. There’s no ill will, she said, because both sides now understand that her old position was a bad match.”
This anecdote shows the best-case scenario for a counter-offer: a realignment to place the employee in a better position more suited to their skills. These are the best kinds of counter-offers because they don’t just rely on money to solve problems but rather address the core reason why the employee was departing in the first place.
You may be able to make the employee feel more valued.
If an employee plans to leave and you make a compelling offer to keep them around, it can showcase to them that you value them as a contributor to the business’s success. However, this is a double-edged sword. The realization that they’re indispensable can lead to the employee slacking off, acting arrogant, or otherwise lording it over the place, which significantly decreases their value to the company.
At the same time, there are plenty of other cons to counter-offers.
The rise in pay and benefits is often more expensive than the hiring process to replace the employee.
The math will vary depending on the employee, the position, and the nature of the offers, but often it works out in favor of the retained employee. Letting them go while replacing them with a skilled candidate can often be cheaper. This is especially true when you recognize that retention offers only work for a short time, and the majority of people who accept them still end up leaving within a year.
The success of the counter-offer can spur more employees to threaten to leave as well.
Any time an employee decides to leave, there’s a risk they will take others with them. After all, they will have made friends with their co-workers and likely share grievances with them. Another company will be more than happy to hire a fully-functional team rather than just an individual if the opportunity arises.
A successful counter-offer brings with it another risk, which is that other employees will decide to use their own resignation as a means to increase their own pay and benefits. The knock-on effect of a single counter-offer can result in requiring higher salaries and benefits for your entire workforce or face massive turnover.
The employee may choose to leave anyway, 6-12 months later.
The worst part about counter-offers is simply that, most of the time, they don’t work. They can buy you some time to pump the employee for knowledge and train up a replacement, but it’s nearly inevitable that they will leave regardless, and not all that long after accepting the offer.
What Makes a Good Counter-Offer?
If you’re determined to retain your critical employees, a counter-offer is largely your only available tool once they’ve already reached the point of putting in their resignation. A good counter-offer begins with one thing: understanding why the employee is leaving. Why have they made this decision?
- Is their workload too high, and the stress is too much?
- Do they want a benefit like remote work that you aren’t offering?
- Are they being dramatically underpaid for their position and skills?
- Is their current role poorly aligned based on their skills and experience?
- Do they feel undervalued and underappreciated?
- Do they not feel comfortable with company culture as it stands?
- Is their work/life balance tipping too far in favor of work?
- Is the company failing to invest in technology and infrastructure, leading to employees working with out-of-date technology?
- Has the company been merged or bought, and restructuring has made them dissatisfied with the new normal?
- Has their job stagnated, leaving them with no clear opportunities for growth or promotion?
It’s also possible that the employee is resigning for reasons other than job-related reasons, such as a health issue or a family issue. In these cases, it can be difficult or impossible to retain them, even with an extremely good counter-offer.
Once you know precisely why the employee is leaving, you can determine whether or not you can address their issues.
For example, if they’re leaving because they have no clear route to advancement, you can establish ongoing training and promotions for them. If they’re leaving because they feel unappreciated, you could develop a system of employee recognition. If they’re leaving because of restructuring, you may need to realign their role in the organization to one that is more satisfactory to them.
Of course, if the reason an employee is leaving is systemic or deeply ingrained in your company – part of company culture, part of management, or part of a problem that requires extensive budget and years to upgrade – it can be impossible to offer “fixing the problem” as part of your counter-offer.
Should You Offer a Counter-Offer?
The truth is, it’s a little risky to offer a counter-offer to a departing employee for two reasons.
- It can lead to more employees taking the same actions to get counter-offers of their own.
- It might only work for a short period before the employee reaffirms their desire to leave.
With those in mind, it’s entirely your decision to make. A counter-offer isn’t worthwhile most of the time, and the risk might not be worth it. However, in some scenarios, particularly when a highly valued or critical employee is involved, you may need to do anything you can to keep them around.
If you’re willing to take on the risk, and you’re capable of addressing the employee’s actual problems driving them to leave, then a counter-offer might be a great option. However, this will often require additional investment in culture, improvements, upgrades, and communication. If you aren’t sure you can make those investments, a counter-offer isn’t in the cards.
Do you or your company have any questions about counter-offering or if you are in a situation to counter-offer a resigning employee? If so, please feel free to leave a comment down below, and we’ll get a conversation started. As we mentioned, a counter-offer may only work in specific scenarios and may not even be guaranteed to be effective. We’d be more than happy to assist you and your company with understanding the counter-offer a little more, if need be.