Counteroffers: Reactive vs. Proactive Dollars

Are counteroffers a good strategy for keeping key people who tender a resignation?

If an organization maintains a competitive compensation program (i.e., proactive dollars), the need to make counteroffers almost completely diminishes.

A competitive comp and benefits program tells employees how the company values them.

When an employee makes a decision to resign, he/she has already made the mental and emotional choice to be somewhere else.

Reactive dollars in the form of a counteroffer will typically not resolve the underlying reasons an employee has decided to resign.

HR POINTER: Reactive dollars never deliver the same ROI or employee satisfaction as proactive dollars.  Reactive dollars simply set a pattern in place that shows other employees that management only “oils the squeaky wheel.”

The big question is, “Do counteroffers work?”

Most surveys show that counteroffers are effective about 20% of the time.

Some surveys show that over 80% of employees who accept a counteroffer are gone from the company within 6 to 12 months for four reasons:

1. The counteroffer never materializes exactly as quoted (i.e., the money, new responsibilities, and/or job title fade away when the threat of the loss is eliminated).

2. The employee is fired because the company only made a counteroffer as a stopgap to prevent a problem until they could recruit a replacement.

3. The company perceived the employee’s desire to leave as insubordination and a lack of loyalty, which then taints management’s perception about the employee and his/her subsequent performance.

4. The counteroffer never resolved the issues that caused the employee to resign in the first place.

A good exercise for management is to analyze each position relative to counteroffers as if each employee resigned today.  Then, if management would entertain a counteroffer for a given position, consider giving the money, job title, new responsibilities, etc. to the person now.

Being proactive with financial and other recognition of employees significantly improves your ROI compared to the scenario of an employee having to ask for a raise or in the worst possible case having to resign to be recognized.

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2 Responses to Counteroffers: Reactive vs. Proactive Dollars

  1. Jim McMonagle says:

    Great posting! You are bringing up a problem that can lie dormant, but when it strikes, it can be painful to a small business.
    This compensation issue is a major issue. The challenge in a small company is that the cost vs. reward of having a formal compensation policy in place is not clear to management until it bites them. Sometimes, simple things like an employee satisfaction survey (anonymous) might help identify problems. Management may find out that it’s not always about money, so counter-offers result in “throwing good money away.”

    Jim McMonagle
    Part-time and Interim CFO to Growth-Oriented Companies

  2. Jay Lowry says:

    As a headhunter, who has lost a few placements to counteroffers over ths years, I am glad to have more documentation of what I have been telling my candidates. The facts are that counter offers very seldom if ever solve the underlying problems of a disatified employee. So don’t fix the problems before I call the employee and make my job easier.

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