Client Articles

Client Articles | Issue 18

• A tight labour market and the need to retain good people means counteroffers are on the increase, and have become a recruiter’s greatest concern.
  
  
• Current management wisdom says counteroffers are not a successful long term retention strategy: 80% of employees who accept a counteroffer leave within a year.
  
  
• Be thorough in assessing that your candidate is exploring your opportunity for the right reason. Lay the groundwork in anticipation of a counteroffer so you can be confident one can be overcome if it is made.

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Introduction


The last few years have been a great time to be a job seeker – unemployment is at historical lows and the economy has been robust. Globalisation is creating opportunities in emerging markets for ambitious candidates to rapidly progress their careers. It’s not uncommon for high performing candidates to find new jobs in just 72 hours and increase their salaries by 20%-30% in just one job move.

But for employers, it’s a different story. Many are scrambling to recruit from a limited supply of quality candidates, as well as retain the good staff they already have. One tactic that has been steadily growing over the past few years is to make a counteroffer when an employee gives notice. A recent survey revealed that of 1,700 employers surveyed in 2007, almost half had made counteroffers[1]. But although they’re on the increase, there is still debate as to exactly what a counteroffer is, if and how they should be used, and how to combat them effectively as a recruiter.


What is a Counteroffer?

A counteroffer is an offer or inducement from an employer to a current employee, which is designed to get them to stay after they’ve announced their intention to leave the firm and take another job[2].

This is not the same as when a candidate receives an external job offer but does not communicate it to their current employer, or when the candidate informs their employer about offers received that they never intended to accept. These are astute positioning tactics candidates may use to reinforce their worth by letting their employer know they have other options. A genuine counteroffer scenario only occurs when there is valid intention to quit. So if your thoroughbred employee has already bolted, how do counteroffers measure up as a retention strategy?


Counteroffers: Statistics of Success and Failure

The statistics around counteroffer acceptance vary slightly depending on the sector, but the following figures[3] are not very encouraging:

For those candidates who accept a counteroffer and stay with their current employer, 80% still left the business within 12 months. 42% stayed less than 3 months, and 8% stayed between 3 and 12 months. Just 20% of counteroffered candidates remained longer than 12 months.

These figures clearly show that counteroffers rarely work as anything other than a short-term retention strategy. Until recently, counteroffers were mostly reactive and financially-based, which failed to address the real motivations behind an initial resignation.

Today, counteroffers are increasingly being used more strategically. Savvy managers know that in the majority of cases, a counteroffer does one thing: it buys them time until they can find a replacement.

So if counteroffers don’t work but are on the increase, how you do minimise their impact on your recruitment process?

Preventive Planning

The best way to avoid losing good candidates to counteroffers is to plan ahead and do your homework. The following actions are strongly recommended with candidates:

• As much as you can, make sure the reason the interviewed candidate is looking for a new opportunity is sound. Why are they really leaving? Gaining insights into what motivates the candidate (and what de-motivates them) will help you match their expectations with the right opportunity. It will also give you some helpful ‘ammunition’ if they start to waiver when a counteroffer appears.

 

• Has the candidate exhausted every avenue at their current organisation? It’s in your best interests to weed out the candidates who haven’t fully explored the potential of their current employment before they look elsewhere. The naiveté of first-time job changers can make them especially vulnerable to counteroffers.

 

• Find out if they have ever accepted a counteroffer before and if so, why. A candidate who’s accepted a counteroffer at least once before might be likely to do so again.

 

• Get the issue out on the table by discussing or issuing information on the reality of counteroffers early in the recruitment process. Provide candidates with industry articles that outline unsuccessful statistics like those cited above and reasons why they should not accept a counteroffer (see below). You can even provide candidates that have accepted a job offer with a draft resignation letter template that explicitly rules out the desire for a counteroffer to be made.

 

• Remuneration is usually a major factor in counteroffers, so if you can find out exactly what the candidate is looking for upfront in terms of actual job and earnings, you can set the expectation levels on both sides ahead of time and avoid any unpleasant surprises. A solid knowledge of your market (e.g. average salary and benefits packages) is mandatory to ensure that a candidate’s expectations are realistic. Get the subject out in the open and reach an understanding with the candidate as soon as possible. You don’t want a candidate asking for 5%-10% extra in their package at the last stage of the recruitment process because they think they can get it elsewhere (or from their current employer).

 

• It may sound obvious, but keep the candidate informed about their progress throughout the selection process. One reason candidates often give for considering counteroffers is the treatment they received during recruitment[4]. Communicate with applicants frequently, give them feedback as soon as possible following interviews, and set realistic expectations around decision time-frames.

 

• The single biggest enemy you face in today’s market is time. Once a candidate says ‘yes’ to a verbal offer, an employer must move swiftly to confirm all the necessary arrangements. Any delay in the onboarding process (e.g. slow to issue a letter of offer, not communicating clearly about the induction process) will only sow seeds of doubt in a candidate’s mind that can make them more vulnerable to a counteroffer.

Recognise the Warning Signs

Once you have a candidate in your sights, be on the lookout for two tell-tale warning signs that your prospective new hire may be open to a counteroffer:

• Delaying tactics – if they keep re-scheduling meetings, are suddenly too busy to meet with you, or are indecisive about accepting your offer, they may be having second thoughts about their decision to leave.

• Inappropriate consultations – if your candidate discusses your offer with his current manager, it’s likely he’s hoping for a counteroffer. Similarly, resignation letters that leave the door open for a counteroffer are a clear sign that the deal is not closed.

Handling Counteroffers

Unless your candidate is using their job search to negotiate better conditions with their employer, you should not be upset when learning of a counteroffer. You are actually still at a significant advantage.

There are many good reasons that have been well documented as to why your candidate should not accept a counteroffer. It’s worth tactfully pointing out the most relevant of these to the candidate:

1. Statistics show that if they accept a counteroffer, the probability of voluntarily leaving in six months or being let go within one year is extremely high – around 80%.

2. If they have to leave their current employer before being promised what they’re worth – either now or in the future – is their current employer the type that really values their work and someone they would want to stay committed to?

3. Many companies have strict wage and salary/promotion guidelines, which must be followed. Where is the money/position for the counteroffer coming from? Is it merely coming out of the employee’s next pay rise/promotion?

4. A counteroffer with a pay rise/promotion is most likely the maximum their employer has been forced to pay. Their new job and salary package is often only the starting point.

5. Good managers know that most counteroffers are unsuccessful, and are most likely only making the offer to hold on to their expertise until they can find a replacement.

6. The candidate has now made their manager aware that they are unhappy. From this day on, their loyalty may always be in question. When performance reviews are due, their manager may remember this. If times get tough, their employer may begin the cutback with them.

7. More often than not the same circumstances that have now caused them to consider a change will repeat themselves in the future, even if they accept a counteroffer.

8. Accepting a counteroffer communicates loyalty can be bought. They were about to leave on their own terms; instead they are back at the source of their unhappiness with a fresh set of promises.

9. When (not if) people in the employee’s current workplace find out they were on the verge of leaving, relationships with colleagues are often never the same. Their position with their peer group can be severely jeopardised as colleagues are more cautious about investing their time in a relationship that may not last.

Any one or combination of these may be enough to cause the candidate to reject the counteroffer. The most important thing is to listen carefully, revisit why the candidate applied for your role in the first place, and remain confident. As long as your offer is on target, with the right approach and reasoning you still have a very high chance of securing the candidate.

Conclusion

In tight labour markets, counteroffers will always be a popular retention strategy in the war for talent, even though the upfront cost is high and statistics show that they are not successful in keeping the majority of candidates for the long term. At best, they give an employer time to find a replacement.

However, for a potential employer they can be a frustrating exercise that can result in a significant waste of time and money. To reduce the chance of losing preferred candidates to counteroffers, closely monitor the selection process and encourage candidates to be as transparent with you as they can. Don’t be tempted to short circuit a disciplined selection process that weeds out those who are not serious. If it appears that your candidate lacks sufficient motivation to make a job change - or is using you for career leverage – close the deal swiftly or move on to secure the services of another more suitable candidate.




Article research / resources:


1. Hays Salary Survey Commentaries – Accountancy, Finance & Banking Sectors http://www.hays.com.au/salary/accountancy.aspx http://www.hays.com.au/salary/banking.aspx
2. Verkom IT Counteroffer Definition http://www.verkom.ie/Counter_Offer
3. Hays Salary Survey Commentaries – Accountancy, Finance & Banking Sectors http://www.hays.com.au/salary/accountancy.aspx
4. Handling Counterofffers http://www.net-temps.com/recruiters/recart/index.htm?id=15

Other research / resources:

‘Goodbye Loyalty’ http://www.misweb.com/magarticle.asp?doc_id=26296&rgid=5&listed_months=0
CPA Australia 2008 International Salary Survey http://www.cpaaustralia.com.au/cps/rde/xchg/SID-3F57FECA-EA7C0540/cpa/hs.xsl/724_29090_ENA_HTML.htm
Don’t bother with the counteroffer http://www.builderau.com.au/blogs/codemonkeybusiness/viewblogpost.htm?p=339270822
Handling Counterofffers http://www.net-temps.com/recruiters/recart/index.htm?id=15
Counteroffers: How to Spot the Warning Signs? http://www.billradin.com/recruiting_tips_counteroffer_signs.htm
Counteroffer or Counterproductive? http://www.workforce.com/archive/feature/22/22/66/223217.php
11 Reasons for NOT Accepting a Counter Offer http://www.sladegroup.com.au/business/needs/search/counteroffer
Don’t bother with the counteroffer http://www.builderau.com.au/blogs/codemonkeybusiness/viewblogpost.htm?p=339270822