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Should I make a counter offer when a valued employee resigns?

David Morel, CEO - Tiger Recruitment

New research from Microsoft suggests that the Great Resignation is far from over. In its latest Work Trend Index, which surveyed 31,000 employees in 31 countries, 43 percent of respondents said they are “somewhat or extremely likely” to consider changing jobs in the year ahead, up slightly from 41 percent in 2021.

One way for employers to stem the talent flow is to offer a competitive compensation package and support people’s preferred working arrangements. However, what recourse do you have when it’s too late and your valued employee resigns? The temptation can be to make a counter offer in a last-ditch attempt to persuade them to stay but is this the best long-term strategy?

It is a difficult call for employers in today’s candidate-short market. Should you let this person go given that their commitment to the company is now in question? Or should you offer them an incentive to stay as it will be less disruptive and resource-intensive than having to hire and train someone new?

Arguments for

In the short term, a counter offer can be an effective tactic. It helps to retain talent and knowledge when businesses can ill afford to lose either. It also eliminates the cost and effort of recruiting a suitable replacement in a competitive market and getting them up to speed. However, arguably, retaining someone who may be feeling disillusioned or undervalued is simply a temporary fix.

Arguments against
Research and experience show that counter offers rarely have a happy ending. Offering someone an increase in salary or additional benefits might persuade them to stay for a while, but often their reasons for wanting to change jobs in the first place don’t go away, and they will leave the business anyway. More often than not, candidates call us up within six months of accepting a counter offer wishing they had taken the opportunity to move on.

Sometimes, not earning enough is the reason candidates give for wanting to jump ship. In this case, we always recommend they broach the subject with their line manager before applying for jobs as it’s an issue that could be resolved with an honest conversation.

However, people rarely leave a job for money alone. Microsoft’s research backs this up, finding that pay is near the bottom of the list of reasons people are quitting. Personal wellbeing, work-life balance, a lack of confidence in senior management/leadership and a lack of flexible work hours or location are more likely to have your employees heading for the door – things that a higher salary can’t resolve.

Even if the employee who accepts your counter offer defies the odds and stays for the long haul, can you ever trust them and their loyalty in the same way again?

Ripple effect
An employee accepting a counter offer can also negatively impact the wider business. One disgruntled member of staff can spread negativity to those around them, affecting morale. Also, once word gets out that a colleague has been able to secure a raise, other employees may feel encouraged to ask for more money. The upshot is more counter offer negotiations and salary increases, incurring more cost than you had initially anticipated and creating an imbalance in your salary scales.

What to do?
Given the shortcomings of counter offers as a long-term retention tool, what should you do if an employee resigns?

Your first step should be to understand their motivation for wanting to leave.

If they believe in the business and, aside from their immediate concerns, can see a future working there, then it is worth trying to find a solution.

However, if you sense that they have already checked out, it may be time to bid them farewell. This approach may seem counter-intuitive if you are already short of staff and you value their skills, but it will be better for your business in the long run. Managing and motivating an employee whose heart isn’t in the job can be draining and unproductive – it is better to devote your energy to finding their replacement.

Give them a reason to stay
Ultimately, though, your aim should be to ensure that employees don’t reach the stage of wanting to resign. That means offering salaries, benefits and career opportunities that are competitive and consistent with what employees today demand and, indeed, expect.

The key is to create an environment where employees feel valued and are inclined to stay. So, conduct regular salary reviews to check that you’re paying the industry rate, map out clear career paths to help employees progress and offer flexible working to support employees’ desire for a better work/life balance. That way if you do need to replace a departing employee, you’ll be in a stronger position to attract the brightest and the best.

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