The Competitive Counter Offer

I recently had the opportunity to read a fantastic article from HR columnist Suzanne Lucas on competitive counter offers – and why companies shouldn’t make them.

The wisdom goes that if an employee has reached the point where they have a counteroffer from another company, that said employee is already as good as gone (he/she has likely spent months going through the job search process to get that offer – think about that). As such, rather than making a counteroffer a company in this situation might as well instead cut its losses.

The data shows that this is overwhelmingly true. A commonly cited statistic in HR is that depending on the industry and economy; between 2/3rds and 80% of employees still leave their organization within 6 months of accepting a counteroffer (this number climbs to 85 to 90 percent within 12 months). Knowing this statistic, companies make counter offers mostly to protect themselves from the large cost of suddenly and unexpectedly losing a valuable employee (while they prepare for the likely eventuality that he/she will leave).

That said, as a Compensation Specialist (who is friends with lots of Compensation Specialists), I want to talk a little bit about the exceptions to this rule as I understand them…

1. Tangent coming.…So when I was in my very early 20s 1, I met the woman with whom I would have my first “meaningful” relationship (I was aware that everything before was going to end almost as soon as it began). I saw her while heading to meet up with someone else for a 1st date (we can’t choose when this things2. I subsequently tested and confirmed my hypothesis by going over and saying hello. Thus (for me at least) our first encounter literally and figuratively met the criteria for the romantic clichés “love at first sight” and “she had me at hello”.happen), and I immediately hypothesized that I might be in love. 

I got her phone number and we began dating less than a week later. 3 Over the subsequent years, she turned out to be for me all of the things that a man’s partner often is to him – smart, interesting, attractive etc.

I felt lucky.

3. Things obviously didn’t work out with my actual date that night.By the 4th year of the relationship, however, we were beginning to have problems. By the summer we’d broken up. We got back together. We broke up again (and got back together again).

The third time we broke up we didn’t get back together.

For a time after the last breakup she wanted to try to make things work again, and, I suppose (honestly) that at times I did too. Yet after some careful consideration, I made the decision to shut the door on us. The decision really didn’t have anything to do with my feelings for her so much as it did the way we’d handled our problems to that point (and what this might foreshadow about a hypothetical future together). A quote from the 2001 movie4. I’ve actually never seen this movie (or the book by the same name), but I am a huge fan of well written prose. This quote has been floating around for a while and caught my attention. If anyone has seen the movie and would recommend it please let me know.“Captain Corelli’s Mandolin” 4 makes the point more eloquently than I ever could, so I’m including said quote below:

“Love is a temporary madness. It erupts like an earthquake and then subsides. And when it subsides you have to make a decision. You have to work out whether your roots have become so entwined together that it is inconceivable that you should ever part. Because this is what love is. Love is not breathlessness, it is not excitement, it is not the promulgation of promises of eternal passion. That is just being “in love” which any of us can convince ourselves we are. Love itself is what is left over when being in love has burned away, and this is both an art and a fortunate accident. Your mother and I had it, we had roots that grew towards each other underground, and when all the pretty blossoms had fallen from our branches we found that we were one tree and not two.”

By the time of our 3rd breakup, I realized that my partner and I had made the decision that our problems were bigger than our desire to be together. We were – in the words of the author above – not one tree, but two.

In life, there is always adversity (sometimes minor and others major) right around the corner. A couple’s decision to face those challenges together – without splintering apart – is the difference between partnerships that last and partnerships that don’t…

5. Sometimes it takes me a while to get to the point.  …Which brings me to the competitive counter offer 5

Theoretically, I’m a huge fan of the competitive counter offer. If a company is a6. At least amongst the non-executive population. For executive populations there are some good reasons why you want to pay at median even if you have world class talent (I’ll talk more about this in a later article).pay leader in its industry (which it should be for key positions 6), offer matching is something an organization can and should do to retain top talent (at effectively market value).  

Furthermore, I strongly believe a company’s top performer(s) should be near or at the top of their position’s pay range anyway (regardless of years in the job), and if they aren’t paid at that level and get another (better) offer, the employer should just think of this as a market correction and respond7. Responding accordingly would be matching the offer in case you’re wondering… for the record though, I also strongly believe that your median employee in a population should be closer to a 100% comparative ratio than the top of the pay range.accordingly. 7

…At least in theory. Unfortunately, once an employee has looked externally and accepted an outside offer, the employer/employee relationship is often too badly damaged to return to business as usual even in instances where the employer improves upon the external offer and manages to (temporarily) retain the employee.

With the trust in the relationship shattered (and an expectation that they’ve merely temporarily staved off the employee’s inevitable departure by offering more money), post counter offer the management team often creates a self-fulfilling prophecy by changing the nature of the relationship with the employee from strategic to technical/transactional (further alienating the very employee they wish to retain).

And so while I remain a fan of the counter offer in theory, I am only a proponent of it in practice when all of the below conditions are met:

1. The reason the employee elected to look externally is primarily tied to monetary reward and *not* intrinsic compensation:

This has to be the starting point. If an employee is looking externally because he or she doesn’t like their work/boss/co-workers/wants a promotion the employer can’t give/etc. then offering more money to said employee to stay on (without addressing his/her other underlying concerns) is not a long term solution.

Monetary reward alone will not solve this man’s problems.

2. If the employee looked externally for both extrinsic and intrinsic reward reasons, all of these issues need to be negotiated as part of the counter offer process:

If you extend a monetary counter offer without addressing the non-monetary concerns, at best it will buy you some time until the employee finds an even more attractive opportunity than the last (by leveraging his/her newly increased salary during his/her next job search).

At worst, the employee’s performance will decline post counter offer (once he/she comes to regret staying or the changed office environment becomes too tense).The employee will still likely leave (or be terminated for poor performance), and you won’t have gotten the productivity you needed to justify extending the counter offer to begin with.

It’s critical to really hear the employee out at this point. Money alone may not solve the problem.

If an employee’s non-monetary complaints aren’t fixable (or the employer doesn’t want to address them) *never* improve the monetary reward package to retain him/her – it won’t last.

If the employee’s manager really does need the employee to stay on for the time being in order to prepare for life after the time he/she leaves then a counter offer is of course fine, but extend it understanding this is a short term fix (it may even be a good idea to discuss this with the employee – in which case you may just be looking at an extended notice period assuming he/she can negotiate it with his/her new employer).

3. Assuming that monetary reward is the primary reason the employee looked externally, after extending the counter offer the employer (and employee) need to legitimately forgive and forget any issues and perceived slights.

If a counter offer is extended and accepted, both parties really need to start fresh.

Anytime an employee looks externally, the trust in the employer/employee relationship is damaged. In order to re-establish that trust, both parties need to reset the relationship once they’ve agreed on a new compensation package and the employee accepts.

If both parties can’t do this the new relationship is doomed to fail. An office environment where the employee is bitter that he/she had to go externally to be paid market value (and/or an environment where the employer is perpetually worried the employee will leave and treats them this way) is too poisonous for the business relationship to survive.

Ultimately, when an employer and disgruntled employee face challenging times together, they have to make a decision to either work together to address their issue(s), or else part ways. Depending on the history between the parties, it may or may not make sense to continue the business relationship (sometimes an amicable split really does make the most sense).

Regardless, a continued healthy business relationship is much like a romantic8. while probably not being similar in any other ways. -_-relationship in at least one respect, with that respect being that it requires both parties to stay engaged and committed, even when times are tough. Everything is great when a new hire first joins a company, but once the bloom is off the rose, the choice to make things continue to work is a decision both parties have to make together (and in earnest).

Employers/Employees: If times are tough and you’re thinking of breaking up… before making any rash moves take a look at your relationship and ask: Are we one tree, or two?


Categories: Compensation