The Risk of the Counter-Offer

by Chuck Csizmar - Nov 15, 2009

Bob just turned in his resignation, handing you a paper with a single line of text; he was leaving in two weeks. Cripes! Bob is one of your best team leads, and his departure will leave a hole in your department that will be hard to fill, especially in the short term.

Is there anything you can do?

At this point the question of a counter offer will pop into every manager's mind that has ever faced this dilemma. Give Bob what he wants and he'll stay - right? Find out what he has been offered and promise the same. Problem solved?

Not by a long shot. It's not that simple.

Bob may or may not decide to stay, but meanwhile other discontented employees will note your response, the relationship with Bob has already been damaged by his resignation, and any new "arrangement" might create internal equity trouble. Productivity and morale could be impacted, no matter what happens to Bob.

Your solution might create even more problems for you.

What to do? Let's look at the implications of a counter-offer from both sides.

The Employee Perspective

If an employee has made the decision to leave, and subsequent actions have progressed to the point where an offer has been received, then mentally they have already left. Any internal debate they might have had over making a change has already been resolved, and they are comfortable with their decision. They may even be anxious to leave, as the new employer offers a fresh start, with new challenges, new faces, increased responsibilities and of course more money.

They may be enticed to stay by increasing their rewards package, but you cannot be certain. Their true motivation may remain an unknown, leaving you to deal with only what they are willing to disclose.

If the key catalyst for resignation is not rewards (i.e., friction with the boss, perceived dead-end job, dated technology, long commute, too much travel, etc. etc.) a counter offer focused on more rewards will miss the mark.

The Employer Perspective

If you extend a counter-offer, it will become known and discussed. Employees may get the idea that such is the way to get a better deal with the company - by threatening to quit.

Those who accept counter-offers often leave anyway within 6 months - that is all the time you have purchased, as other unresolved issues would remain sources of continued dissatisfaction. More money will not solve those problems, and typically counter-offers address only the money (easy fix?) issue.

Once an employee has resigned, even if later rescinded, their relationship with the company is forever altered. It is unlikely that the company will have positive thoughts about the individual down the road, even if the immediate manager still loves them. Career prospects will have taken a body blow.

If you extend a counter-offer and it is rejected, the same internal damage will be felt as if it had been accepted - so you better be careful before extending yourself. Meanwhile, the employee is no longer considered loyal, and cannot be trusted to remain longer term. They have been bought.

When could this work for you?

If an employee tells you they are thinking of leaving, vs. actually having an offer in hand, then you have more room to maneuver. But the company should examine how they deal with threats - because other employees will be watching.

However, if your world will end if Bob leaves, or you need to buy time until a replacement can be put in place or a project completed, you may wish to consider negotiations.

Caution: line managers may advocate a counter-offer more because their lives are made difficult by an employee's departure than the business impact of the separation.

Doing it Anyway

If you are planning to make a counter-offer, prepare yourself in advance by:

• Learning the nature of the offer you are competing against.
• Ensuring your period of vulnerability is minimized.
• Developing a backup employee as soon as possible.
• Deflecting employee criticisms over favored treatment, dangerous precedents, etc. Word will get out, so you should have a story ready that rationalizes your decision. You do not want to face a host of "what about me?" calls.

For those companies who may have a policy that allows managers to consider counter-offers, the approval process should be visible enough to ensure that the broader issues of business justification are discussed. Personally affected line managers should not make the call.

A final caution: like a fine aged whiskey you should only sip at this practice and savor the mutual gain, not gulp it down and feel the burn.

This article came from latest edition of "The Compensation Exchange", a monthly newsletter written by Chuck Csizmar, CCP.