Managing counter offers
By Rebecca Martin | smh.com.au | 15 March
It's a headache many managers know all too well. In wanders your best talent, letter in hand, to tell you they've found another, better paid, job. Ahead lies three months of expensive recruitment, training and team building. Increasingly, the solution is to make a counter-offer to the departing staffer, promising wads of cash and promotion if they agree to stay.
"[Counter-offers] are absolutely on the increase," Richard King, national director of recruitment firm Michael Page, says. "We see more candidates receive a counter-offer than not. It's always happened but, as organisations are increasingly aware of the tight labour market and the need to retain good people, it's happening more."
Counter-offers can help you temporarily hold on to good people but there are pitfalls, such as other staff demanding increases and the retained staff member leaving anyway a few months later. The upfront cost can also be very high.
Grahame Doyle, director of Hays recruitment, says with the market tight, employees "can pick up 20 per cent to 30 per cent increases in one job move". Counter-offers usually need to be at least as good if an employee is going to be enticed to stay. "To be frank," Doyle says, "money talks."
Jason Derbyshire, associate director at Robert Walters, says counter-offers have become a recruiter's biggest concern. "This month we've secured nine candidates employment opportunities," he says. "Five of them are in counter-offer discussions and that would probably be a [typical] percentage.
"One of our biggest worries is the onslaught they will get from their employer about why they should stay, and what they will do to retain them."
A downside of such offers is that, while they can stop staffers walking out the door, this might only be short-lived. Common management wisdom says counter-offers don't work, at least in the long term. Statistics showing 80 per cent of employees who accept a counter-offer leave the company within a year are often cited.
"Counter-offers are reasonably unsuccessful a lot of the time," Doyle says. "The reason for that is they are a reaction to a resignation. Most counter-offers tend to be of a financial basis, which isn't addressing the most important motivation for why someone has resigned."
A rethink of an employee's role might be necessary for a counter-offer to work in the long term.
"If someone resigns because they don't believe in the philosophy of the company, or in the management, or are uninspired by the organisation, then a counter-offer may get them to rethink, but it's not going to change the environment in which they work," Doyle says.
Another problem is the impact the rise will have on other employees.
"I'm aware of a situation where someone was given a counter-offer and bought back with a significant increase in salary," King says. "One Friday evening they have told colleagues about it at the pub, which has effectively created a queue at the manager's door on Monday morning, looking for more money."
There is also the chance that employees wandering through your door with spectacular tales of better offers might simply be on a fishing expedition, especially if they've had a call from a headhunter. "For every 10 people that are headhunted, six or seven will leverage the fact that they have been called to bring up a conversation around money," Derbyshire says.
Professor Chris Jackson from the Australian School of Business says it's reasonable to assume that in a candidates' market a reasonable proportion of people are just trying to get a pay rise.
He says the nature of human psyche suggests a manager will probably give them one, at least the first time they try it on.
"We become more attractive once we are wanted by other people," Jackson says. "As soon as your competitor makes an offer, [the employee] becomes a worthwhile commodity to keep. As soon as an employee gets a better offer, they have the winning hand. All a manager can do is match that hand or beat it," Jackson says.
In weeding out potential salary "blackmailers", recruiters are a manager's best friend, as they are keen not to waste either their own or their client's time. If a candidate has got as far as to receive an offer, chances are they genuinely want to move on.
"We all work hard to make sure the candidate is there for the right reason," Derbyshire says. Of the five or six candidates he has who are considering counter-offers, he is confident all will say no.
"It's in our own best interests to filter out the people who haven't given enough thought to how far they might push internally before looking externally."
Perhaps one of the best things counter-offers buy managers is some time. "If you offer someone a counter-offer and they stay, then you know they are a flight risk," King says.
"You should start planning for them to leave as departure stats show they are likely to move on."
Smart managing
Richard King, from Michael Page, says one way of avoiding the need for counter-offers is by getting smarter at managing people.
"[Some companies] have an equivalent of an exit interview with [employees] once they are about 18 months into a job," he says. "Before they have shown any sign of dissatisfaction, they make sure the company has been able to deliver on promises made at the initial interview."
With employees aware of their growing value in the market, Grahame Doyle, from Hays Recruitment, says managers should make sure they get in first.
"If people feel they can discuss their salaries, it creates a better environment than a place where people think, 'Don't ask for an increase because you won't get one,"' he says. "Then [the employee's] only option is to look outside."
First published by Smh.com.au on March 15 2008
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