Counteroffers Don’t Work Unless They are Accompanied by Meaningful Change

We’re well into 2022, and organizations in several sectors are still facing a talent crunch.

Bloomberg recently branded this situation the “Great Talent Recession”, while Korn Ferry warned that talent shortages have moved to a chronic problem in the new year.

A September 2021 survey (also from Korn Ferry) revealed that 55% of companies expect employee turnover to increase in 2022, with 43% saying the labor shortage is having a negative impact on operations.

No wonder counteroffers are on the rise. Companies are fully aware of how difficult it has become to replace employees in a highly competitive, talent-driven market. For many, the economics of counteroffers make sense. The cost of a salary increase (say, a 25% raise) pales in comparison to the cost of recruitment for specialized or strategic leadership roles.

Why salary-based counteroffers don’t work

There’s a frequently quoted fact in HR circles that 90% of people who accept a counteroffer leave their roles within a year. Digging a little deeper has revealed this statistic is anecdotal with no identifiable research behind it, but the reasoning behind the numbers still rings true.

Why? Because unless someone is leaving solely to pursue a higher salary, a salary-based counteroffer will leave the underlying reasons why that person quit their role unaddressed.

An analysis by jobs revealed the top nine reasons employees quit their jobs:

  1. Lack of engagement
  2. Poor relationship with managers
  3. Unprepared managers
  4. No room to grow (lack of career path)
  5. Working with outdated technology
  6. Poor feedback or a lack of career-related check-ins
  7. Lack of flexibility (remote working and flexible hours)
  8. Unclear company mission/vision
  9. Burnout.

Note that the wish for a salary increase isn’t even on this list. Yet the knee-jerk reaction when a valued employee leaves is to offer them more money. This begs the question: how big a raise do you think it would take for an employee to “put up” with a problem like a bad relationship with their boss or a lack of flexibility? Twenty percent? Thirty? 

A salary-based counteroffer is like patching a leak in a pipe with packaging tape rather than spending the time and effort on a proper plumbing solution. It may hold the pressure for a while, but eventually, the jury-rig is going to fail.

Start by asking why your people are quitting

Most organizations conduct exit interviews that survey employees on their reasons for leaving, but these usually take place too late. The question needs to be asked immediately, and there’s very little time to dither over the appropriate counteroffer.

Immediate versus longer-term fixes

Let’s look again at the list of reasons people quit. What sort of counteroffer would apply for each point? It can be helpful to think of counteroffers on two levels:

  1. An immediate offer that applies solely to that individual. 
  2. A longer-term, wider-scope fix for the underlying problem to prevent others from quitting for the same reason (if it’s a common complaint).

For example:

  • If someone complains about their manager’s behavior, an immediate fix might be to move that person’s reporting lines (find them a different manager), while a longer-term solution would be to engage with the problematic manager and provide relevant training or any other support they may need.
  • If somebody complains that workplace policies are too rigid, they could be offered a hybrid arrangement immediately while the organization reworks its flexible working policy in the longer term.
  • A burnt-out employee could be offered immediate paid leave to rest and recuperate while the organization investigates a longer-term strategy for preventing burnout amongst the rest of the team.

Counteroffers like these should be made in addition to, rather than instead of, a salary increase. After all, money is a great motivator and a good way to show a disengaged employee that they really are valued. But it shouldn’t be relied on as the only lever to pull when somebody threatens to resign.

What if someone is genuinely leaving to find a higher salary?

It’s no secret that finding another job is, for many, the fastest and most effective way to increase their salary. While an average company may begrudgingly offer a yearly raise of 3% to 5% (if they are offering raises at all), job-hopping can net an immediate salary increase over 10%. One such job-hopper profiled on CNBN quit her job six times in twelve years with an average increase of 39% every time she jumped to a new employer.

There’s also the current talent shortage to take into account. Employees (particularly in tech roles) know they’re in high demand and stand a good chance of negotiating a great salary if they take the leap. If this is the case, then a salary-based counteroffer makes a lot of sense. But be generous: approach this challenge like a hiring manager who knows they have only one chance to secure a great candidate by putting their very best offer on the table.

A final note on salary-based counteroffers – if an employee has to threaten to quit in order to receive a significant raise, this indicates a communication breakdown. With frequent check-ins, feedback, and career-path discussions, that person’s manager could have been aware that the employee was unhappy and found a way to address their salary aspirations.