In today’s tight job market, employers are tempted to do just about anything to retain talented professionals. However, the question many employers face is whether or not it is in the company’s long-term interest to make a counteroffer in order to keep an employee who has received a competitive offer elsewhere. The following article by NPAWorldwide Executive Director, Dave Nerz, offers even-handed advice and explores the statistics that will help determine the long-term prospects of an employee retained via counteroffer. His article also offers excellent suggestions for ways to retain institutional knowledge and experience.
Phoenix Partners is a proud member of NPAWorldwide, the global recruiting network for independent recruiters. NPAworldwide is the oldest recruiting network of its kind, with an international membership of recruiting firms located throughout Europe, Asia, Australia, Africa and the Americas. Please enjoy Dave’s excellent article compliments of NPAWorldwide.
Should Employers Make Counteroffers?
By: Dave Nerz, Executive Director, NPAWorldwide
So what happens if one of your top employees stuns you with a letter of resignation? Let’s assume he or she has not won the lottery but rather has what they see as a better opportunity lined up. This is a likely scenario as more than 50% of all employees are looking for work, either actively or passively. When you confirm the departure is for a better offer, bigger challenge, or maybe a reason based on your organization structure, culture, or management…the temptation is to begin a counteroffer discussion.
These situations will be happening with greater frequency in the future as the demographics are undeniable. It is now a candidate-driven market, meaning employees control the hiring and job change marketplace. Quality employees and certain skills are hard to find. Retention is critical. Offers from competitors will continue to improve for your most desirable employees. Some departing employees may even have multiple offers.
Should you make counteroffers to departing employees? You know training a new employee or finding the replacement talent will be time-consuming, difficult and expensive. Some studies indicate it will cost between one-half to perhaps as much as two-thirds of the salary of your departing employee to get a new person hired and trained. Depending on the quality of the job being done by your departing person, this estimate could be low. For example, a sales professional may take longer to ramp up and the downtime means lost revenue – not just administrative or project work moving more slowly or being offloaded to others.
There are good reasons to make counteroffers. It is likely that the reason for departure is greater than what the money associated with a counteroffer can fix. Would they not have asked for a raise, asked for more responsibility, asked for a work-from-home arrangement to ease balance and commute issues? A survey of employers by The Creative Group has shown that 38% of managers reported not making a counteroffer to employees announcing plans to accept a job offer. Employers are becoming realistic and know that if an employee says they are leaving for another job, they have thought it through and while your efforts may reverse those actions in the short-term, long-term this employee is already gone.
Some stats from surveys:
- 57% of counteroffers are accepted
- 80% of those accepting counteroffers leave within 6 months
- 90% leave within a year
Counteroffers can, however, be part of a strategy to fill your open position with the talent required to keep projects and revenue moving forward. A strategy that more employers are using is a very aggressive handover model. With a handover model, the counter is not about reversing the decision, but rather about buying a few weeks of time from your departing employee. Many new employers are willing to wait a few weeks for a key employee to make a move if they know they are involved in a formal hand-off process. Read More.
In the rest of the article, Nerz suggests strategies to create a hand-off plan that in a perfect scenario, would occur over a period of weeks and would include the departing employee’s participation in drafting the new job posting.
However, ideal departures are rare in today’s climate. At Phoenix Partners, we encourage our employer clients to obtain detailed handover notes from the departing employee that cover both how-to and background information on projects, objectives, and methods, if possible. Any adjustments to the job description gleaned through an exit interview should be made before placing the order for the search.
As Nerz points out, losing institutional knowledge and experience can be costly. This loss can be minimized by implementing an effective hand-off plan and passing on the collected information to the new employee.
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