As staff prepare to quit, are counteroffers the key to retaining them?

The number of businesses that are turning to counteroffers to retain team members is on the rise but HR leaders must consider the potential consequences before meeting employees’ demands

Counteroffer Business Deal

January is often a time of year when people look to explore new opportunities – as many as 40% of UK staff plan to move jobs this year, according to recruitment firm Robert Half – but many jobseekers who look to pastures new might find themselves on the receiving end of a counteroffer from their current employer. 

With businesses continuing to face skills shortages and challenges in the recruitment market, the counteroffer has quickly become an important tool for improving employee retention. August’s CIPD Labour Market Outlook Report revealed that 40% of UK employers had made one or more of their staff a counteroffer over the past 12 months. Of those, 38% had offered to match the salary of the new job and 40% had countered with an even higher salary.

Retention is a top priority for many HR leaders as we start a new year and, with 51% of employers surveyed by the Chartered Institute of Personnel and Development having already increased their use of counteroffers over the past 12 months, this percentage is likely to increase.

For Jon Boys, labour market economist for the CIPD, this is no bad thing. “Prices are how we match supply and demand but in the real world it’s difficult for employers and employees to know what wage to offer or accept,” he says. “Counteroffers arise because employers are responding to new information about an employee, that is, the market is saying they are worth more.”

In this respect, it is an important strategy for retaining skills, without which, Boys contends, we would have a “less efficient labour market and poorer matches between employee and employer”. 

Be cautious with counteroffers

However, Alex Rylance, head of UK HR for IT firm Netcompany warns that employers “have to be careful” when deciding whether to use a counteroffer. 

“People will often say that they’re leaving because they’re going to get a £30,000 uplift and a company car,” he says. “The first thing we would do is review the individual and look at form, performance and the role they’re currently in to determine whether this is talent that we want to keep.”

Although the business has historically used counteroffers to retain its best performers, it’s not a strategy Netcompany regularly turns to. Rylance also stresses the importance of seeing the physical offer first before countering it. 

Counteroffers work best when they take place within a fair and transparent pay system

Companies should also be wary of turning to counteroffers too frequently. Puma’s global director of people and organisation, Dietmar Knoess, says: “It can be tricky. It might be easier to give the individual more money because it saves cost on recruiting a replacement. But, at the same time you should make sure that you don’t do it too often.”

The average cost of replacing an employee is estimated to be between 6 to 9 months’ worth of the outgoing person’s salary, according to Centric HR. But, although meeting an outgoing staff member’s demands may be cheaper in the short term, if this tactic is repeated by the same employee or others, the costs can spiral. 

It’s therefore important for businesses to be strategic when using counteroffers. “Counteroffers work best when they take place within a fair and transparent pay and remuneration system,” Boys advises.

Knoess explains that Puma employs a pay band system, which it doesn’t yet publish publicly, to ensure it’s paying staff fairly. This makes it easier for employers to identify whether someone’s increased salary demands are in line with what others are being paid in similar roles.

Counteroffers can also lead to internal pay disputes, if it results in someone being paid significantly more than their peers. Doug Rode, the UK and Ireland managing director at recruiters PageGroup, says that any business that meets the increased salary demands of one person through a counteroffer will have to ask themselves: “How do I level everybody up? Is it equitable? And is it right, if the person is already at the top of their salary banding?”

It’s more than just the needs of one individual that need to be weighed up when considering how to respond.

Attrition can sometimes be healthy

While retention is important, it’s worth remembering that some attrition is healthy. Business leaders should not be scared of people leaving for new opportunities elsewhere.

Being open with your retention strategy is helpful and healthy for a business

Rylance says: “It can be quite good to see people move to another industry. You sometimes find they eventually come back to the business at a higher level, so it’s good practice to keep warm conversations going with people who have left.”

Graphic design platform Canva has a similar outlook to employee attrition. “If people have timed out at Canva, or if it’s just not an organisation that gels with them, we’re okay with a small level of healthy attrition,” says Jennie Rogerson, its global head of people

“We’re in a period of hyper growth, which means things are changing all the time,” she adds. “We’re aware that’s not what some people want from a job, so being really open with your retention strategy is helpful and healthy for a business.”

Despite the fact the use of counteroffers is on the rise among UK businesses, it shouldn’t be seen as a simple solution to retaining staff. While they have their uses, if your staff are repeatedly entertaining offers from other companies, a higher wage alone may not be enough to hold onto them over the longer term.