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Paul David, a talent acquisition specialist based in Irvine, California, recently shared on LinkedIn an experience he had in hiring a new employee.
The economic recovery from the COVID-19 pandemic has created a fervent job market that’s led to a great departure of talent, fueled by employees who feel undervalued by their current employer. Thus, some organizations are acting in a reactive manner to retain their existing talent by shelling out counteroffers at an unusual rate.
Shelly Holt, chief human resources officer of Payscale, said employers can avoid this pickle by enhancing their transparency around compensation.
“In the current war for talent, there's never been a more important time for clear and open policies and communications about where employees are in terms of compensation,” Holt said.
“Sometimes a pay increase to match an offer from a competitor is possible, but ultimately should facilitate a healthy conversation around why pay is fair and the opportunities for advancement if the employee should remain at the organization.”
To Counter or Not to Counter
The practice of counteroffers is as old as employment itself, with its roots in negotiating tactics 101. However, there’s healthy skepticism about whether or not a counteroffer is even worth it from the employer’s perspective.
For instance, research by job-search firm LiveCareer indicates that 57% of all employees who accept counteroffers change organizations within the following two years. A Harvard Business Review survey found that nearly 40% of senior executives and HR leaders alike agreed that accepting a counteroffer from a current employer will adversely affect one’s career.
Aside from the data, the psychology behind the situation would seem to indicate the potential for an unstable future relationship between employee and employer. An employee who accepts a counteroffer has already gone through the effort to actively seek and secure a new job opportunity because they felt undervalued, thus the boost in a total rewards package might only temporarily stave off their embittered feelings toward the company and/or management. Likewise, leadership might have had a different path charted for the employee and now could harbor feelings of resentment toward this employee for forcing their hand.
To wit, Harvard Business Review’s data found that nearly 80% of senior executives and 60% of HR leaders cited diminished trust and compromised reputation among the executives and board members for employees who accept a counteroffer to remain with the company.
“In my experience counteroffers don’t work 95% of the time,” Jenny McCauley, former senior vice president of Administration at Southwestern Energy told HBR. “And when they do work it’s usually only for the short term — someone who wanted to leave is eventually going to leave anyway.”
Compensation professionals have expressed varied opinions on the topic of counteroffers, with most acknowledging their company does utilize the practice. A prevailing opinion of those in the profession is that it has to be done on a case-by-case basis and it has to make sense for both the employee and the company.
For instance, if an employee has received an offer from another company for the same job role for more pay, it would make sense to counter that offer. However, if an employee has received an offer for a different/larger role at a new company and that same career opportunity doesn’t exist at the current organization, a counteroffer typically wouldn’t be offered.
It’s also important for organizations to be sage in identifying when counteroffers make sense, so as not to give the impression that simply gaining a higher compensation offer from another company is a means to increasing your pay.
For many in the profession, counteroffers weren’t viewed as a compensation issue prior to 2020, but rather an employee experience issue. However, the scalding job market is flipping that sentiment on its head, as organizations are constantly weighing the value of retaining an employee at a higher wage versus hiring an external candidate to fill the role, often at a wage equal to what a counteroffer to the previous employee would have been.
Ideally, all organizations would love to eschew counteroffers altogether, but that’s not reality. Some employees will slip between the cracks and feel undervalued for a variety of issues, compensation often being one of them. However, employers can get ahead of this by consistently rewarding quality performance and career tracking with their employees.
An employee who is paid at or above market rate and feels they have a path toward career advancement at their current employer is far less likely to test the job waters, nixing the perpetual cycle of counteroffers within a company.
“With the democratization of pay data and increased employee demand for pay transparency, as well as the hot labor market, employers should be reevaluating their approach to compensation packages,” Holt said. “Pay is the single most controllable expense that organizations have, and one that makes the biggest impact. “They should be able to communicate to workers how their pay is fair and equitable, because the reality is that the companies who are being very prescriptive about their strategy and clear about their policies are attracting more talent.”