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They made him an offer he can’t refuse… are you sure about that?

Posted by Tom McMullen

Tom McMullen

One of my friends, Catherine, is the manager of a large group of people. One of her key leaders just tendered his resignation because he’s been offered a better deal elsewhere. She really can’t afford to let him go: he has a unique skill set, is a top performer and is the lynchpin to her business unit’s most critical initiative over the next two years. If this person leaves, it’ll be incredibly demoralizing to Catherine’s team and won’t make her look good as a manager. Should she make a counter-offer for him to stay?

Catherine has a number of questions about this:

  • Am I even allowed to make a counter-offer?
  • Is this really about a better deal elsewhere? Is it about the money? Is it about me?
  • What would I put in a counter-offer?  Would I provide an increase to base salary?  Shares of restricted stock?  Can I promote this person?
  • What if other people on the team find out about this?  Am I creating a hornet’s nest if I provide a counter-offer and it’s accepted?
  • Will he eventually leave in the next few years anyway?

Tough questions. Made even tougher by the fact that she only has a day to respond, as the other company is expecting a final answer by tomorrow.

Common practice isn’t best practice
This scenario is one that plays out daily in most large organizations. Recent Hay Group research shows that a surprising 96 percent of organizations don’t have a documented counter-offer strategy or policy.  This doesn’t help when, at the eleventh hour, your company’s managers need guidance in deciding whether to provide a counter-offer and what it might consist of.  Here, common practice isn’t best practice.

Our research also revealed that:

  • in most organizations, managers have broad discretion to decide which employees might receive a counter-offer
  • HR functions jointly manage this process in a slight majority of organizations, while line managers drive the process (with HR either not participating or taking a light advisory role) in 43% of organizations
  • counter-offers aren’t necessarily restrictive or constrained to certain types of employees
  • contrary to what some might think, relatively few organizations reported employee relations issues resulted from an employee accepting a counter-offer.

Our research findings are generally consistent with previous research we’ve conducted on this topic.  In this research and our experiences with clients, we find that counter-offers largely consist of base salary increases, job promotions, a change in job role or change in supervisor.  These are all immediate gestures to respond to the threat of resignation and to show a tangible commitment to the individual.

The subject of counter-offers is a greenfield opportunity for most companies and one where they would be well served to develop some guiding principles to support their managers in making tough, high-impact decisions, quickly. These principles, which may not be broadcast far and wide in the organization, would at least be valuable tools for people managers and HR business partners.

Things to think about

Areas to consider when developing your principles might include:

  • Who is eligible for a counter-offer?  Are they reserved for top performers or certain types of roles?
  • What roles do HR and senior management have in the decision making process?  Is it a shared accountability? Do all requests go through HR or only the exceptions?
  • What information should be collected to formulate a counter-offer?  What are the root causes of this situation?  What caused the employee to begin to look for a job elsewhere –a conflict with a leader, team climate,  pay, lack of career opportunities?  And are the issues fixable?
  • Who should structure and communicate the counter-offer? Should it be the current manager or someone higher up in the organization?
  • What’s our strategy in responding to employees who may learn about a counter-offer?

While an important step, taking control of your counter-offer practices is a tactical intervention.  Organizations also need to address the meatier and more strategic issues that are driving the need for counter-offers – namely, creating the engaging work environment and robust talent management processes that reduce that need. This includes building the organization’s career development, succession planning and total rewards systems. Focusing on both these tactical and strategic issues will give your organization the edge in an increasingly competitive labor market.

Tom McMullen is reward practice leader for Hay Group North America.

For more about reward can help you keep your best people, read this month’s issue of Hay Group IMPACT.

 

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4 comments

  1. Ben Frost

    Ben Frost

    July 24, 2013 at 1:07 pm

    Tom, what are your views on how often counter offers should be used? Obviously, the ideal is that they are never needed, but my perception is that they are best used sparingly – simply because of the potential effect on other employees if they get the impression that “to get a good deal, you need to resign”.

  2. Tom McMullen

    Tom McMullen

    July 26, 2013 at 1:48 am

    Ben – agree that counter-offers should be used sparingly for the reason you note. Excessive use of counter-offers could compromise the credibility of the organization, its management processes and its managers.

    Counter-offers are most impactful in ituations involving a high potential and high performing employee — particularly if they are in a crtical job or a job with a limited bench of candidates.

  3. Daren

    Daren

    July 27, 2013 at 12:30 am

    Call me a skeptic.

    But what research do you have on the ROI of counter-offers? If a counter is accepted, what’s the average tenure from that point forward?

    Resignations by their definition, carry a level of emotional detachment. “I’m done with this place.” “I’ve had enough.” And what level money, job title or managerial change is going to heal that detachment?

    This piece ignores entirely the organisational psychology and the reptilian parts of our brains, which are infinitely more powerful drivers of our behaviour than the more ‘evolved’ parts of our brain that respond to superficial factors like money and job titles.

  4. Tom McMullen

    Tom McMullen

    July 29, 2013 at 6:58 pm

    Daren – we do have some data regarding counter-offer effectiveness from a previous research initiative on this topic from several years ago. We surveyed senior reward leaders regarding their counter-offer practices.

    Based on your experience at your current employer, how likely are employees to accept counteroffers?
    – 19% Often accepts counteroffers
    – 42% Sometimes accept counteroffers
    – 13% Unlikely to accept counteroffers

    When employees accept a counteroffer, what is the most likely outcome?
    – 63% Relationship did not change
    – 13% Relationship got better
    – 9% Relationship got worse

    What is the likelihood of an employee leaving within a few years after accepting a counter-offer
    – 23% Employees seldom leave within the next few years
    – 23% Employees may leave within the next few years
    – 23% Employees typically do not leave within the next few years
    – 30% Don’t know

    Agree that things must get appreciably better for an employee to stay long ter, but this data suggests that the immediate response of a counter-offer and what it represents with a commitment to more substantive change after that is a mechanism to thwart key talent exiting the orgaanization. Of course, these organization are best served to address the prompting issues that are causing employees to start looking elsewhere in the first place. Tom

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