In 2018, 58% of 5,500 employees surveyed made a job counter-offer to retain employees*. It can be a tempting proposition indeed. The skills gap, Brexit, the costs of replacement, the sheer panic…
So when does it make sense to make a job counter-offer, also known as “candidate buy-back”?
Sometimes it’s best to cut your losses. But other times you can beat the (sometimes dubious) statistics that state as many as 90% of employees will leave within the year anyway. And if you do counter-offer, a pay rise isn’t always the answer.
The pros of a job counter-offer
The Pareto Principle: top talent is worth fighting for
It’s simple: if a top-performing employee hands in their notice, it can make good business sense to try to retain them.
Numerous research shows that the performance of employees doesn’t follow the typical bell curve but is more akin to a power or “Pareto” curve. So the top 20% will produce 80% of the results (and one source suggests that top performers produce an average of 10x the average revenue per employee). (See our previous blog for more on the real way to calculate the true cost to hire.)
In short: top talent can be worth fighting for.
(Or paying for!) And if you want to hire top talent, they’re in demand. Here’s our guide to Reducing your Time to Hire (and losing top candidates).
You retain unique skills & contacts
Your organisation has likely spent time training and upskilling employees according to the exact skills you need. In fact, 46% of CEOs stated that upskilling was a key priority to address the current skills gap in PWC’s Talent Trends Report 2019.
If these skills are highly specialised or in-demand, then it can sometimes make sense to try to retain employees with a job counter-offer.
Equally, sometimes an employee’s contacts (or sheer ability to win new business) means it’s worth entering negotiations.
You avoid potential productivity loss & training costs
When a permanent employee leaves, it can wreak havoc on a team’s productivity. In fact, absence is said to account for up to 20% lost productivity costs and the REC states that recruiting and training new employees at a senior management level on £42,000 costs £9,730.
The cons of making a job counter-offer
You’re unlikely to be able to change your culture
“71% of employees would take a pay cut to work for an organisation with similar values”
via People Management
Culture is perhaps the biggest motivator for many candidates. It’s backed by the research and our own conversations with clients. Yet “serious efforts to change company culture can take five or more years to make stick” (Rich Lyons, “Three Reasons Why Culture Efforts Fail”, Forbes). And a MckInsey study shows that only one in three culture change efforts succeed.
You may not retain employees for long
A candidate may accept your pay rise but often the reasons that they wanted to leave in the first place haven’t gone away. You can try to address them, but it often comes down to culture.
Which leads us onto…
If an employee has had to threaten to leave to get what they’re worth, it can leave a bitter taste in their mouth and they could be left wondering whether they’ll have to fight for every subsequent pay rise or promotion.
It can send a bad signal to other employees
Even if employees aren’t discussing their salaries outright (apart from the odd drunken disclosure), if someone hands in their notice and then retracts it, there’s likely to be a few furtive glances and whispers in the office.
Employees may suspect that their colleague is now on a higher salary, or it may send the signal that the best way to negotiate a salary increase is to issue an ultimatum.
How to make a job counter-offer
Sometimes the pros do outweigh the cons. For example, your employee may be a top-performer, have skills that are hard to replace, be working on a critical project or are moving to a direct competitor.
(Even then there may be other options: You could upskill existing employees or look to hire contractors with highly-specialised skills to plug the gap.)
But if you’re still intent on making an employee counter-offer, here’s how to make it work:
Dig deep (in a non-confrontational way). Your employee will probably state they’re moving for the salary (or other compensatory-related benefits package) but, as we’ve said, it’s often not the only reason. Ask them the question.
Look for unspoken signals. Your employee has probably alluded to issues they are unhappy with, or maybe their circumstances may provide a clear clue e.g. they’ve recently started a family.
Consider Maslow’s Hierarchy of Needs: Appealing to emotional or even experiential needs may bring you the best chance of differentiating your offer.
What other benefits or perks could you offer? e.g.
- Flexible or remote working. 9 out of 10 employees desire this but only 1 in 10 employers offer it. (Timewise study, ‘Flexible Working: A Talent Imperative’)
- Additional training (along with time off).
- A clearer promotion path.
- Exposure to new clients/projects.
If you’ve successfully negotiated a counter-offer, then good luck. Hopefully, with the right changes, you can retain your top-performing employee. If not, it’s time to start thinking about your hiring strategy. The best candidates are in demand and reducing your time to hire is a key strategy in preventing another bidding war – but this time with another hiring employer.