Let’s set the scene –

You have just gone and applied for a new job, you did a great interview and the employer’s impressed with you so they make you an exceptional offer and you are looking forward to beginning a new chapter in your career and learning from new experiences. You hand your notice and inform your managers of your departure. They respond with an appealing counteroffer, perhaps in the form of a promotion or a promise to make overdue adjustments – all to persuade you to remain working for them.

Of course, businesses will want to hold on to talented employees. Being offered more money and perks to remain working where you are already comfortable to work can be very tempting however, counteroffers are not a good idea for either party involved.

1) Trust has been broken

Initially, accepting a counteroffer seems like a win-win. The company wins by maintaining a valuable employee on their team, and the employee gets a promotion of some sort without have to jump ship and move to a different company.

However, what most people do not detect is that counteroffers are rarely a long-term solution for an employee that is ready to depart from the organisation. From our experience in the HR and recruitment industry about 9 out of 10 candidates that accept a counteroffer end up leaving within a year regardless.

Once an employee has threatened to leave an organisation then this breaks trust on both sides, it’s not easy to come back from that. Allegedly 80% of senior executives say that trust is diminished when an employee accepts a counteroffer.

If the employee accepts the counteroffer then yes, the employee has chosen to remain with your business but only after interviewing for another job and almost accepting another job in secret. This may leave managers with a poor taste in their mouth. Resulting in doubts regarding the person’s loyalty and longevity. Similarly, the employee knows the company was only willing to step up when they found out about the employee considering departure.

2) Underlying issues not addressed

While a counteroffer can often address a candidate’s compensation issues, it doesn’t automatically solve other factors that encouraged the individual to go job-hunting in the first place. Once the initial excitement and benefit of the pay rise fades away, those factors will inevitably reappear.

There are many reasons people will go in search of a new job. Money being a big one, it’s also quite common for an employee to go in search of a more fulfilling position, a new industry, quicker commute, flexibility to work remotely, improved leadership or simply a more optimistic career development path. As time passes, a candidate may realise that a couple of hundred or a thousand euros doesn’t make up for what he/she may have sacrificed by staying put.

What’s worse for the company is that an employee who regrets passing up a new job opportunity can become uninterested and disengaged in their role. Believe it or not, but having employees decide to resign from their place of work is a much better result than having an employee working for you that mentally quit the job weeks ago and continues to give 50% effort just to collect their paychecks.

3) Pay people what they are worth

Employee compensation should be determined by performance and the market. If an organisation just waits for an employee to threaten to leave before providing them with a pay increase it indicates that they may be underpaying them. Some organisations will be unwilling to match an offer if they are already paying what they believe is fair.

One reason we don’t make counteroffers at Acceleration Partners is that we believe employee compensation should be determined by performance and the market. We align pay to those factors on a regular and proactive basis; we don’t just wait for someone to threaten to leave to provide raises. If an employee is offered more money than we’re paying them, we’re unwilling to match because we are already paying what we believe is fair.

Companies that consistently offer employees more pay just as someone suggests walking away from the business are essentially admitting that they are underpaying their staff. This is a sign of poor leadership. Incentives cause behaviour and a good policy to adopt is to pay people what they are worth in order to set the precedent that interviewing for a new job is not necessarily the best option to get a raise. Finally, if the motive of the employee is to get the highest possible paycheck, there is always someone that will be willing to pay more, that individual is not likely to stay with the company much longer anyway.