When I was in China less than a year ago, HR and staffing professionals uniformly pointed to high turnover (30 to 40 percent) among middle managers as the No. 1 issue affecting their companies' plans for growth, as well as concern over sustaining company performance. As a consequence, nearly all firms were resorting to counteroffers—promotions and money primarily—in a doomed attempt to improve retention. This short-term mentality has unintended consequences that you've described very well. Seeing how consistently their colleagues are rewarded by obtaining external job offers and parlaying them into promotions and raises, other career-minded employees are following suit. They see little alternative to periodically interviewing for an extra internal move, whether or not it makes any sense for the business.
I recently surveyed 100 of my U.S. colleagues and found that 97 percent are using counteroffers as a retention strategy—just not as liberally (yet) as their Asian counterparts.
In my opinion, the problem cannot be solved by escalating the compensation and titles without regard to profits. It can be solved by focusing on the core needs of a growing professional class in the Pacific Rim. There, as you know well I'm sure, the importance and expectation of rapidly escalating income and promotions are inextricably linked to family and mentors (to whom a high level of commitment is required).
If, for example, the successful completion of a project were to be followed by a great celebration where all the members of the team (not just management) were feted and their families were involved and they received significant bonuses, it would be clear where the honor (and commitment) lay.
If real profits are shared with employees, and especially if those profits include high regard for safety and social responsibility, there would be alternatives to this too-rapid ladder climbing. If leaders of multinational corporations continue to make 600 to 1,000 times an entry-level professional worker's salary, however, employees are going to feel as if management isn't committed to them—so why should employees commit to the company?
1) Branding your company's "difference" as part of the interviewing process. Tell stories in each interview about how employees are honored in ways that give their family great face in the community, not solely by compensation and promotion. Show real career maps and then commit to them.
2) Describe during the offer what a counteroffer is—how it may meet short-term career goals (for more money or prestige) by accepting it, but how long-term success may be lost forever by accepting short-term deals. Use this approach to pre-empt counteroffers. Never make a counteroffer after, only before.
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