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Counteroffer or Counterproductive

October 1, 1999
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Related Topics: Retention, Featured Article
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East Coast advertising sales rep Lisa Kramer had absolutely no idea her supervisor at the Santa Ana, California, office of Advanstar Communications would make a counteroffer when she announced back in February her intention to leave for another publishing company virtually down the street. She had become disillusioned for various reasons, not the least of which was management’s shortsightedness in refusing to increase her salary to reflect her four years with the company. "We had just changed the name of our magazine. Saleswise it was tough, and I wasn’t happy with the way things were going, especially when they started hiring new people with less experience for more money," Kramer says. "I wanted out of all the negativity."

But Advanstar group publisher Michael Forcillo wanted her to stay with the organization. Although he was happy for Kramer that someone else had recognized her talents, he quickly realized it would cost his company more money to replace her than to retain her with a modest salary increase. "As a manager, you do what you can to keep turnover low," he explains. "In truth, Lisa’s compensation package hadn’t kept pace with her performance, and I was concerned about our ability to replace her in such a tight labor market."

So he offered her a 21-percent increase "above and beyond" the competitive offer.

And Kramer accepted. "When Advanstar made me the counteroffer, I still hadn’t let go of my emotions, and I hadn’t signed anything with the other company," she says. "So I decided to stay, expecting things to get better."

Roni Arnold is Advanstar’s manager of corporate recruiting and human resources. She says there’s no policy at her company regarding counteroffers, only that each business unit operates within its own budget. "It’s up to each manager to decide how he or she wants to handle a situation. If an employee is truly looking elsewhere for more money, and that’s the main reason for her wanting to leave, then a counteroffer makes sense when you consider the high cost of turnover. However, I’m not convinced most employees look for another job simply because they want more money. Oftentimes, there are other underlying issues that money just won’t fix."

In fact, some human resources managers have found that individuals who accept counteroffers usually leave the company within the first six months, either on their own accord or because the fundamental reasons for leaving in the first place haven’t changed.

Passive retention strategy?
Depending on whom you talk to, a counteroffer either sweetens or poisons the whirlpool of emotions between employee and employer. At best, a counteroffer induces an employee to stay after announcing intention to leave. It may involve more money, but increasingly it involves such benefits as flex-time, more vacation time and/or telecommuting. Success, then, is easily determined by whether both parties walk away with a recommitment to each other. It’s the passive retention strategy of the ’90s, says one HR professional. And mostly because it’s easier for an employer to give a little than to conduct an exhaustive, expensive search for new talent.

But while counteroffers on the surface may appear to be a win-win situation for both employee and employer, there are downsides: (1) Many times, an employee is simply playing one company against the other for a new, sweeter deal; (2) What you gain over here with a counteroffer may cause resentment and low morale over there with another employee who also wants more money and better benefits; and (3) Counteroffers wreak havoc with internal pay structures.

The extent to which a counteroffer becomes counterproductive depends largely on whether you’re just throwing money at staff to solve existing problems, or whether you’re engendering loyalty, interest and commitment to the company and its objectives. "I’ve seen it go both ways," says Arnold with Advanstar. "We’ve had some employees who have accepted counteroffers and remained here for years, and others who have accepted counteroffers and left after six months. Managers should be in tune enough with each employee’s commitment to the company so that this type of thing doesn’t come as a big surprise."

HR managers need to remind themselves and their managers that counteroffers can be risky business, and they should take a deep breath and review whether this candidate is valuable enough to the organization.

As recently as two years ago, Cisco Systems Inc. rarely made counteroffers if one of its 20,000-plus employees gave notice. But today, as the battle for workers remains fierce, the San Jose, California-based computer-networking company is rethinking its strategy. "When key talent is being courted by the competition, you want to make sure your people are tight in the saddle," says Norm Snell, the company’s director of global compensation. "That doesn’t mean we make a counteroffer to every employee who wants more money. But if they’re critical to the long-term success of this company, we try to educate them about what they’re leaving on the table. We’ve found that in many cases, an employee doesn’t always think about things such as future assignments, benefits, options grants and bonuses."

Within the last year, Snell claims he has made a handful of successful counteroffers simply because he "increased their awareness about the benefits of working here, and the possible pitfalls about working there," he says. "It’s not a money issue, in most cases. It’s lack of challenge, disinterest in job. If you don’t change these underlying issues, it’s going to be revisited again and again, and you’ll end up with a less than positive situation for both employee and employer."

Defects from the ranks.
Whether you should or shouldn’t make someone a counteroffer depends first and foremost on whether a defection in the ranks will create a problem for those who remain behind. Counteroffers are common when a company’s operating with a reduced staff and during a time when the labor market favors employees. Otherwise, most human resources experts say it’s best to make counteroffers on a case-by-case basis. Is this employee a truly valued member of the team? Does he or she possess knowledge or skills that would be hard to replace? Does his or her past performance warrant the additional compensation? Will this employee recommit his or herself to the organization?

A 1998 survey of 1,400 chief financial officers points out a rift between those who believe in counteroffers and those who don’t. Conducted by the financial staffing firm Robert Half International Inc., in Menlo Park, California, 56 percent of respondents said they would probably use counteroffers to keep valued workers, but many of those CFO’s believe counteroffers rarely work. "We’ve seen an increase in counteroffers over the last several years, mostly because it’s becoming more difficult to attract and retain employees," says Lynn Taylor, vice president and director of research for Robert Half International. "Companies these days can’t afford a series of good employees leaving."

According to Robert Half International, human resources managers need to remind themselves and their managers that counteroffers can be risky business, and they should take a deep breath and review whether this candidate or that candidate is valuable enough to the organization by considering the following:

  • The employee’s state of mind. If an employee is dissatisfied and ready to leave anyway, it’s doubtful more money will make a difference.
  • Financial factors. Trying to match your competitor’s compensation package could upset your organization’s entire salary structure, and send the wrong message to employees that this is a great way to boost your take-home pay.
  • The impact on morale. In some cases, employees who accept a counteroffer may be perceived—rightly or wrongly—as disloyal to the company. As a result, the bonds of credibility that keep your operation running smoothly may be severely challenged.

The best time to make a counteroffer is at the point of resignation, says Charlie Dawson, director of alliance teams for Raymond Karsan & Associates, and author of "The Complete Guide to Technical Recruiting" (Management Advantage, 1998). If the employee accepts, present your package as a raise or bonus that was inevitable anyway, and assure him or her that there’s no ill will. Conduct an impromptu employee satisfaction survey to determine if there’s a problem across the board with all employees. Discuss the issues that prompted the employee to consider leaving in the first place, then develop a plan to begin addressing those issues at work—even if a resolution isn’t possible. And educate everyone in your company about why making a decision based on money is oftentimes not the best reason to make a job change.

"I would even encourage managers to caution employees about a sales pitch they may be getting from another company," says Dawson. "Employees need to know the grass isn’t always greener on the other side. Talk openly with them about the other offer and why they’re thinking about leaving. If nothing else, it’s important information for the next time you try to keep an employee from changing jobs."

Steven Mitchell Sack is a New York City-based labor/employment attorney, and author of "Getting Fired" (Warner Books, 1999). He says HRmanagers can discuss a counteroffer verbally, but always commit it to writing so there’s no room for misinterpretation. "As long as you clearly specify that the counteroffer does not imply job security," he says, "you can fire the employee on a second’s notice if it shouldn’t work out." He also recommends the following: (1) Never make a counteroffer you don’t intend to honor because if the person accepts, you will have legally bound your company to the terms of the verbal contract, provided it can be proved the offer itself was sufficiently clear; and (2) Make sure the counteroffer is consistent with the company’s budget and polices—otherwise it may appear as though you’re favoring one person over another, and that could lead to charges of discrimination. For example, you wouldn’t want to offer more money to a man than a woman in the same position, or more money to younger workers than older workers.

Should you decide to let the employee pursue another job, take time to conduct an exit interview so you can learn more about ways you might prevent additional staff from defecting. It might also be a good time to see if your company’s salary structure is still competitive. According to Valerie Williams, principal and practice leader for Pasadena, California-based Strategic Pay Partners, salary ranges should be reviewed every year but in order for them to be based on competitive job data, "a market analysis of benchmark jobs should be conducted ever two to three years." And remember that while you may be losing a valued and productive employee, you also now have the opportunity to fully reassess the position’s responsibilities and restructure it before you fill it again.

Bullish about business?
Two months after Advanstar’s East Coast sales rep Lisa Kramer accepted her company’s counteroffer, she started looking for another job. "Management told me there’d be changes, but things just got worse," she says. So in June she went to work as a sales rep for the San Francisco office of internet.com, an e-business and Internet technology network. "It’s as if I got two raises within six months: the counteroffer from my old company, and the new offer from my new company. And all I ever wanted from the beginning was to be treated fairly and with respect."

As it turns out, Advanstar group publisher Michael Forcillo, the manager who made Kramer the initial counteroffer, also is no longer with the company. He’s now president of the Internet division for the Santa Barbara-based ACEPlanet.com, a technology-based education company for children. "I’ve found that counteroffers are successful in retaining employees only when the company is bullish about its business prospects," says Forcillo. "In other cases, making a counteroffer just prolongs the inevitable."

Workforce, October 1999, Vol. 78, No. 10, pp. 52-56.

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