It's a familiar situation for an employee: You've applied for a new job, gotten a great offer, and are excited to start at a new company and tackle new challenges. All that's left is to let your managers know. But once you try to give notice, they respond with a lucrative counteroffer, promotion, or promise to make overdue changes--all to persuade you to stay.

While it seems natural for a business to want to hold onto a talented employee--and tempting for the employee to stay in a comfortable environment for more pay and perks--counteroffers have poor short- and long-term outcomes for both sides.

At my company, Acceleration Partners, it's always been our policy not to make counteroffers. We think they don't make sense for our exiting employees or our business. Here's why:

1. Trust is broken.

At first, an accepted counteroffer seems like a win-win: The company keeps a valuable employee, and the employee gets a raise or other overdue changes without having to take the risk of moving to a new company.

The reality, however, is that counteroffers are rarely a long-term solution for an exiting employee. Many recruiting websites assert that nine out of 10 candidates who accept a counteroffer end up leaving within a year anyway. 

The problem is, a threat of departure breaks trust on both sides, and it's not easy to recover from that. According to a Harvard Business Review survey, 80 percent of senior executives say that trust is diminished when an employee accepts a counteroffer.

This break of trust lingers long after the employee accepts. Sure, the employee is still there, but only after secretly interviewing for and nearly accepting another job. This leaves managers with lingering doubts about that person's loyalty and longevity. Similarly, the employee knows the company was only willing to step up when they had one foot out the door, and that doesn't feel good either.

2. Counteroffers don't address underlying issues.

While a counteroffer often addresses a candidate's compensation issues, it does not magically erase any of the other factors that compelled them to go job-hunting in the first place. Once the initial excitement and benefit of the pay increase wears off, those other factors will inevitably reappear.

There are many reasons people look to change jobs. Money is a factor, of course, but it's also common for an employee to chase a more fulfilling position, a new industry, a shorter commute, the ability to work from home, better leadership, or a more promising career development path. Over time, a candidate may realize a few hundred or thousand dollars doesn't make up for what she sacrificed by staying put.

What's worse for the company is that an employee who regrets passing up a new job can quickly become disengaged. In truth, employee departures aren't the most damaging to a business--far worse are people who mentally quit but keep coming into the office, giving half-hearted effort and collecting their paychecks.

What's also not acknowledged openly is that counteroffers can put employment in jeopardy, because an employee whose output has not changed--yet is costing the business more--is at a far higher risk of being let go for performance issues. They are also more likely to be the first ones to be cut in a layoff or downturn, either because they are paid more or due to lingering feelings of resentment. So while counteroffers may address the situation in the short-term, it's not a long-term solution.

3. Pay people what they're worth.

One reason we don't make counteroffers at Acceleration Partners is because 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 more pay just as someone walks out the door are admitting that they were underpaying their employees. That's poor leadership. Incentives create behavior, and our policy of paying people what they're worth sets the precedent that interviewing for a new job is not the best way to get a raise. Finally, if an employee is motivated to get the highest possible paycheck, there is always someone who will pay more; that person is not likely to stay long anyway.

The instinct to make or accept a counteroffer is understandable. In the moment when a valuable employee is ready to leave your company, it's natural to want to do whatever you can to make them stay. But this is a very temporary solution. A better approach is to address underlying problems before they become unfixable and, when necessary, respectfully part ways with exiting employees. Then, you can replace them with people who are certain they want the job.

Published on: Jul 15, 2019
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