Should You Use Counter-Offers to Retain Talent? - XCD

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No business wants to lose valuable employees; and when your employee resigns, it can be a challenge to find a suitable replacement. So the question stands: What can you do to keep your departing employee in the company? One common tactic is to counter-offer to retain the employee and keep them in the team. But is this the best idea and how do you ensure this doesn’t lead to problems down the line? Let’s talk about counter-offers, salary scales, work-life balance, and everything in between.

Pros and Cons of Counter-Offers

When your employee resigns, it could be due to a number of reasons. Most probably, they’ve got a better offer from another employer with a higher salary, better benefits, or a more exciting job. These are the ‘pull factors’ that could influence employees to leave your team. However, they may also be resigning because of the ‘push factors’ of your organisation – perhaps they’re not getting along with their manager, maybe they have poor work-life balance, or maybe they’re just feeling unfulfilled in their job. The list goes on.

After your employee resigns, you have a few options. One is a counter offer – generally this means offering a salary increase to discourage them from taking another job offer. However, a counter offer may not always be a pay rise; it could be flexible working hours, a promotion for career progression, strategies for improved work-life balance, or something else. So, what are the benefits of making a counter-offer to try to keep your team members from leaving?

Pros

  • Improving staff turnover. A great benefit to a counter-offer is that it reduces the number of employees leaving your company. Some employees will accept the offer and will remain in their roles.
  • Cheaper. Sometimes it can be cheaper to offer more money to a high-performing employee who plans on quitting. This is because you save the money you would spend on the recruitment and onboarding process, such as marketing expenses, hiring costs, and training.
  • Value and morale. It’s almost guaranteed that your employees feel valued after receiving a counter-offer. It shows them that you are willing to sacrifice a salary increase in order to retain talent and that you value them as a part of the team.

However, there are also some key risks to be aware of when making counter-offers.

Cons

  • Inequality. Other employees might feel negatively if they find out about your offer, especially if salary increases only apply to employees threatening to resign. This could even lead to more employees reaching out for a counter-offer, wishing for the same treatment and value.
  • Exclusivity. Granting some employees a higher salary and not doing the same for others can lead to a lack of inclusion and diversity in your company. For example, if a policy of counter-offers leads to marginalised groups remaining on a lower salary while others get a higher salary, this poses a threat to your DE&I efforts and can lower team morale.
  • Risky. Just because you offer regular salary reviews or a promotion, it’s still a competitive market. Counter-offers rarely solve the original issue that caused your employee to want to resign in the first place. Even worse, they could still just leave after receiving some extra benefits or when another job offer comes along, so you may have a loyalty problem on your hands.

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Impact on Employee Morale and Trust

When you make a counter-offer, it might be a temporary fix. However, in today’s candidate-driven market, it’s not likely to last. Your employee could feel a sense of distrust from you as the employer. This is because it took them threatening to leave for you to make adjustments for them. They want to feel valued throughout their entire journey with you and to have clear career paths in your company.

A counter-offer defies logic in some ways; if you value your employees, you should be making changes in their salaries, company culture, or work style to reflect this. Prevention before intervention is the way to go.

On the other hand, this distrust and lack of morality can affect your entire team and create resentment. Another team member might feel less valued by their lack of salary increase or recognition, while the original employee is satisfied by the offer. This affects all employees; progress can dwindle if morale goes down. They might feel encouraged to change jobs for a more satisfactory environment.

Long-Term Effectiveness of Counter-Offers

Unfortunately, just because you make a counter-offer, doesn’t mean that it’s a long-term retention tool. It doesn’t even necessarily secure the placement of your current employees.

It’s possible that a bonus, salary increase, or other benefit might keep your employee happy temporarily. However, it doesn’t change the original reason your employee wanted to leave in the first place. Ultimately, these issues will most likely appear again within a year or less. Then you’re stuck with great resignation and loss of cash flow.

Your main goal should be having an honest conversation with your team. You need to find out what the root causes of resignation are and how you can change these circumstances for higher morale and better performance. Data-driven HR is essential for keeping track of the root causes of resignation; XCD’s reporting and analytics software can help with descriptive and predictive analytics that highlight turnover risk before it even occurs.

Strategic Use of Counter-Offers

Although the counter-offer might not be a long-term solution, it can be an important strategy in retention. It’s important for HR leaders to look past the monetary challenges they initially anticipated, to the actual cause of dissatisfaction before they jump ship.

It’s a way you can buy some time. Take the time after an employee accepts a counter-offer to understand their reasons for leaving and put in place a strategy to improve the work environment before they hop to a new employer in a few months. You can rearrange responsibilities, offer a fresh challenge, higher salaries, more career opportunities, additional benefits, and more. All of these proactive attempts will show your employees that it’s not about the money; you want them to feel valued because they are.

Alternative Retention Strategies

It’s best to make sure your employees are happy and want to stay in your team before they resort to resignation. Counter-offering an employee is one way, but it isn’t the only solution. Here are some other strategies you can put in place to make your employees feel comfortable, satisfied, and more productive:

  • Effective onboarding processes. Take the time to make sure your employee has all their questions answered. It helps to properly introduce them to the company culture by assigning them a mentor or offering a buddy program. Much research points to a strong link between onboarding and retention; taking the time to get onboarding right is a worthwhile endeavour.
  • Incentives. Show your employees that they’re valued by offering regular productivity-based incentives. It gives them something to look forward to, a reason to work well, and a reward for their efforts.
  • Flexibility. It’s important to not be completely strict about working environments. Talk to your employees and keep an open line of communication. Shift the work dynamic according to their needs, such as being flexible with work hours, hybrid working, social events, and more.

Proactive Employee Engagement and Development

At the end of the day, the best way to retain talent and develop your team to its full potential is through transparency and communication. If you don’t regularly check on your employees, have honest conversations, or offer constant opportunities for feedback, you’re bound to be stuck in an uncomfortable position.

Make sure your employees are fairly compensated for their efforts and don’t just stop at the bare minimum. Offer perks, incentives, interesting career goals, and opportunities for growth. It helps to provide your team with work that makes them feel fulfilled – understand what work they’d prefer to do and what they’re best at. They want to feel like they’re doing something meaningful, not just waiting for 5 pm to arrive.

You may also be interested in: What can we learn from employee turnover?

Conclusion

In conclusion, the decision to use counter-offers to retain talent is a complex and multifaceted issue that requires careful consideration by organisations. While counter-offers may seem like a quick fix to retain valuable employees, they come with potential risks and long-term implications. The use of counter-offers should not be solely relied upon as a retention strategy, as it may lead to a culture of bidding wars and resentment among employees.

Instead, organisations should focus on creating a positive work environment, fostering open communication, providing opportunities for growth and development, and offering competitive compensation packages from the outset. Proactive employee engagement and talent management practices can go a long way in preventing employees from seeking external offers in the first place.

If an employee does express a desire to leave, HR and management should engage in candid discussions to understand the underlying reasons and address any issues affecting their job satisfaction. It is essential to value employees as individuals and seek win-win solutions that align their career aspirations with the company’s goals.

Ultimately, the decision to use counter-offers must be balanced with the overall talent retention strategy. Retaining talent should not be solely based on financial incentives, but rather on a holistic approach that focuses on fostering a supportive, inclusive, and rewarding work environment. By investing in employee development, recognizing achievements, and cultivating a strong company culture, HR teams can build a loyal and motivated workforce that will contribute to their long-term success.

Need help keeping track of your retention and turnover risks or perfecting your onboarding process? Contact us today or request a demo of our powerful HR and payroll software to see how XCD can transform your HR efforts.