Are Counter-Offers Counterintuitive?

It's difficult to let good talent go, but experts agree that counter-offers are not usually the answer to a bombshell resignation. The experience should instead serve as a lesson for employers who value their best producers.

Tuesday, May 14, 2013
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If a valuable employee - one of your best revenue producers - tells you that they're leaving your company for better compensation, should you try to tempt them to stay with a counter-offer?  A recent study conducted by London, England-based Communicate Recruitment Solutions reveals that most employers have never made a counter-offer; and most employees would not accept one.

Jack Roseman, director of the Pittsburgh-based Roseman Institute, says that employers must seek out the underlying truth from an employee who says they're resigning over deficient compensation.

"There are good reasons and there are real reasons; tell me the real reason," is the proper response for an employer to give to the employee who says they're leaving over money, says Roseman, whose company provides coaching, mentoring and negotiating assistance to CEOs of growing enterprises. 

"People don't usually leave for more money," he says. "In most cases, it's because they're unhappy with the company, and it's the job of the employer to find out why they're leaving and if they have a legitimate gripe."

Roseman suggests that an employee who is particularly valued in a company be asked to stay and work things out with management.  "It's not really how much you make today, it's what happens over the continuum of time," he says, adding that -- even during those instances when a real injustice occurs -- it's still ill-advised to give an immediate raise or counter-offer.

"Instead, you say, 'let's see if things can get better over time,' " he says. "A counter-offer opens the door for blackmail, but maybe you can create an atmosphere they would be happier in? Pay can always be fixed over time if the employee has faith in you and faith in the company."

James Lock, CEO of United Kingdom-based consultancy Communicate, says that counter-offers are nothing more than last-ditch attempts to keep someone within a business.

"They make employers and their companies look needy and should never be relied upon for long-term success," he says, adding that the best way to retain high performers for as long as possible is to ensure that their compensation, recognition and culture are as good as they can be.

"Then, when they do resign," he says, "you know you haven't done anything wrong and it is simply the right time for them to move on; which is often a personal decision as much as a professional one."

Lock notes that employers must resist the urge to react impulsively to a star employee's announcement. "When considering a counter-offer, ask yourself whether you would be offering the employee a pay raise or increase in responsibilities if they hadn't resigned," says Lock, who points out that there is opportunity in every resignation.  "Bringing someone with new ideas and different qualities on-board is an exciting prospect, particularly when you can dictate the level you want them to work at and a remuneration package you can afford. Good bosses should realize that personnel change is all part of the ebb and flow of running a business."

Communicate's managing director, Thomas de Freitas, says he believes there is never a good reason to make a counter-offer.  "Under no circumstances should an employee be tempted to stay once they have tendered their resignation," he says, pointing out that doing so will not solve the dilemma of having to fill a vacancy and re-train a new staff member. "Good business leaders tackle issues head-on and do not delay them until a more 'convenient' time."

The success of any business relies on the sum of its parts, notes de Freitas. "It's a collective effort, and going to great lengths to retain one employee can send the wrong impression to everyone else, who will question why preferential treatment is being shown to one individual and resent their colleague being cut a special deal," especially when they had one foot out the door.

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"Don't risk the relationship with your staff for the sake of one individual," De Freitas says. "Especially when [our] study shows that most employees who do end up staying for a counter-offer will leave within six months anyway."

Attorney Richard Frey, a partner in the Los Angeles law firm Venable, says that employers should take a proactive approach instead. "Key employees should be under contract instead of under an at-will policy, because it defines the terms of the employment and the terms under which employment could end. This way, supervisors won't go around making reckless decisions; they must follow a cause standard in the contract to get out of it. So, if you have a good definition of cause, the employer can protect himself."

Joe Phelps, CEO of Phelps, a marketing communications firm based in Santa Monica, Calif., also takes a proactive approach by letting his employees know exactly what they're worth to the company. "Truly have a way of measuring people's performance and make it available before they even ask for it," he advises. "We don't make counter-offers, but we also make it clear that our numbers for people's performance are open for them to review any time."

Phelps believes that a high rate of employee turnover stands in the way of a company's success. "I'm the longest running CEO of any agency in town, and after 32 years [of being in business], we're the second-oldest independent in Southern California," he says.

"Our longevity is due to doing what's right for the client and having a good, solid team that's not always turning over," he says. "When the CEO changes, it's so frustrating, and it's the same with lawyers and insurance people. Finding good people and keeping them is the key to keeping good clients.

"Do what's right for your employees," he says, "and it will come back and help you."


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