Should Employers Make Counteroffers?

October 3rd, 2017 by Dave Nerz

So what happens if one of your top employees stuns you with a letter of resignation? Let’s assume he or she has not won the lottery but rather has what they see as a better opportunity lined up. This is a likely scenario as more than 50% of all employees are looking for work, either actively or passively. When you confirm the departure is for a better offer, bigger challenge, or maybe a reason based on your organization structure, culture, or management…the temptation is to begin a counteroffer discussion.

These situations will be happening with greater frequency in the future as the demographics are undeniable. It is now a candidate-driven market, meaning employees control the hiring and job change marketplace. Quality employees and certain skills are hard to find. Retention is critical. Offers from competitors will continue to improve for your most desirable employees. Some departing employees may even have multiple offers.

Should you make counteroffers to departing employees? You know training a new employee or finding the replacement talent will be time-consuming, difficult and expensive. Some studies indicate it will cost between one-half to perhaps as much as two-thirds of the salary of your departing employee to get a new person hired and trained. Depending on the quality of the job being done by your departing person, this estimate could be low. For example, a sales professional may take longer to ramp up and the down time means lost revenue – not just administrative or project work moving more slowly or being offloaded to others.

There are good reasons to make counteroffers. It is likely that the reason for departure is greater than what the money associated with a counteroffer can fix. Would they not have asked for a raise, asked for more responsibility, asked for a work-from-home arrangement to ease balance and commute issues? A survey of employers by The Creative Group has shown that 38% of managers reported not making a counteroffer to employees announcing plans to accept a job offer. Employers are becoming realistic and know that if an employee says they are leaving for another job, they have thought it through and while your efforts may reverse those actions in the short-term, long-term this employee is already gone.

Some stats from surveys:

Counteroffers can, however, be part of a strategy to fill your open position with the talent required to keep projects and revenue moving forward. A strategy that more employers are using is a very aggressive handover model. With a handover model, the counter is not about reversing the decision, but rather about buying a few weeks of time from your departing employee. Many new employers are willing to wait a few weeks for a key employee to make a move if they know they are involved in a formal hand-off process. You could significantly bump up wages in the 3 or 4 week handover period and perhaps even add incentives to be paid post-departure for a handover done well.

Losing institutional knowledge and experience can be costly. Much know-how can be passed along via a hand-off process if you make it a priority. Start with a hand-off plan. Over a multi-week period, it is important to engage the individual in their replacement strategy. Consider these strategies:

  • Week 1: Departing employee develops detailed handover notes that cover both how-to and background information on projects, objectives, and methods.
  • Week 1: Ask the departing employee to participate in designing the job advertisement and proofing the position description for replacement employees.
  • Week 1: Ask the employee to review their role and identify changes to responsibilities, and methods to improve outputs.
  • Weeks 2 to 4: Have the departing employee available to coach and onboard the new player. This must be closely monitored and perhaps be highly-rewarded to ensure a positive approach. The new employee might be given control of a rating that impacts the level of performance-based comp to be paid to the departing employee. Emphasis should be placed on creating opportunities for less-experienced colleagues to observe the departing employee in action. Encourage team members to keep a log of what they’ve learned and practice any newly defined skills or methods.
  • Week 4: Complete an exit interview to learn from that individual and experiences with your organization. Make plans for final compensation payments and the metrics that drive those.

If you have any tips based on experience, please share them here!

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