Making a counter offer to retain an employee

We are seeing a lot of clients making a counter offer to retain an employee who wants to leave. What are the pros and cons of this approach, and is this the best way to encourage an employee to stay? We offer some advice on how to retain an employee who wants to leave.

Even before the ‘great resignation’ it was normal to experience employee churn as staff inevitably progress their careers. In the current climate, it’s a jobseekers’ market; with more jobs available than candidates. This means higher salaries elsewhere are tempting and for the first time in years, job seekers can pick and choose. However, if they are the staff you can’t do without, or who you believe are critical to the business, then it could be worth considering a counter offer to make them stay. We look at the pros and cons.

Pros

• Retaining good employees is always better than recruiting from scratch and incurring costs and time to induct a new person. Making a counter offer to retain an employee could work out more cost-effective in the long run.
• If the resignation was prompted by money alone then in theory you have tackled the issue and your employee should be motivated to carry on in their role (however, see below cons).
• If the employee chooses to stay this can help the company avoid passing additional workload onto the rest of the team.
• Wider team morale and positive working relationships can be maintained following a successful counter offer.
• Identify the issues that have led to the resignation. Is it purely motivated by money or are there wider issues to consider? Can you put together a package that will address these (such as a change in job role or title?). You need to know that the employee will perform and stay motivated if they remain in the business.

Cons

• Even if you make a counter offer if the person has already made the decision to leave you may find that they have lost motivation in their role. Weigh up whether finances alone will make them happy and whether their performance will be impacted ultimately. Identify what the other reasons were for leaving and whether you can address these. In the long term, will the counter offer really be enough to sustain the level of motivation you need?
• Consider the relationship with the employee. Will you be able to maintain a level of trust and commitment when you know that they were willing to leave?
• Be aware of other members of the team who may now also feel they should receive a pay increase. Knowing that one team member has been given a pay rise after threatening to quit can be detrimental to the rest of the team and could lead to them feeling undervalued and demotivated.

Points to consider

• Always benchmark salaries before increasing them, so that you understand whether you are paying below or above the industry average. Hays has a good salary benchmark checker tool. If you’re paying below then this flags up an ongoing issue that you may face with staff now and in the future. If you’re paying above average, then you need to be realistic and consider whether your business can sustain this in order to retain the current employees. Read our guide to establishing a salary for your employee.
• Think about non-financial incentives or perks you can offer staff. There are many other ways you can attract and retain employees outside of salary. These include benefits such as additional days of holiday, training bursaries, volunteering opportunities, or employee benefits like private medical.

Get in touch if you would like more support or guidance on what to do in this situation. We are offering 15 mins of free HR advice.