Why making a counter offer could be the wrong move
Right now, many employers are facing some of the toughest competition for talent that they’ve ever experienced.

It’s sent some businesses into bidding wars, offering employees more money or benefits to get them to turn down their new job offers.

So what are the pros and cons of making a counter offer?

The pros of making a counter offer

“It’s a lot cheaper than going back out to market,” says Karen Kirton, owner and Managing Director of Amplify HR. “At the moment candidates are in short supply, which means you will probably need to pay a recruiter, and that can be expensive.”

Jane McNeill, Managing Director of Hays in NSW & WA agrees that it’s definitely a candidate’s market. “Job vacancy activity has never been higher.”

On top of recruitment fees, Kirton explains that if your employee has found a higher salary elsewhere, you will probably need to pay a similar (market-driven) salary to replace them. There’s also the cost of induction, training and lost institutional knoweldge and productivity. “You could be losing six months of productivity,” she says.

For many businesses, making a counter offer is preferable to losing a star performer, a key player on a time-sensitive project, or an employee who is part of succession planning. Employees are not likely to be bluffing when they say they’re leaving. Research for SEEK found that half (48%) of employees surveyed who received a job offer had already intended to change jobs, as opposed to just using it as leverage.

“If you'd asked me three years ago, I would have said don't counter offer, let the person go,” Kirton says. “But I think this year, there are definitely circumstances where it's worth considering.”

Counter offers don’t have to be financial. Some companies offer promotions, attractive projects, professional development opportunities, or benefits like increased flexibility or extra annual leave. “Often people say, ‘we’re a small business, we can’t afford to increase the pay by $20,000. But I know that you've got kids in school, what if offer you a nine-day fortnight?’” Kirton says.

The cons of making a counter offer

There’s one big problem – counter offers are less likely to work for retention, especially in the long term. The research found only 26% of people had accepted a counter offer made to them. Of those who said they’d accepted one, 86% were no longer at the company and 57% stayed in the role for less than a year.

By making a successful counter offer, you’re really just buying time. According to Kirton, “you need to have a plan, because within six or 12 months that person will probably go.”

Another key problem, McNeill says, is that “most counter offers don’t actively address the reasons behind the resignation. While a pay rise, new job title or additional benefits may be tempting, they don’t resolve the original job search motivations. It often won’t be long before the employee decides to look elsewhere again.”

Kirton warns that counter offers can also cause tension and discontent in the workplace. “People talk. They will know that when someone was offered another job, they were given more money,’ she says. ‘If you do counter offer, and it’s accepted, you then need to look at what inequities you may have created and fix them.”

A better retention strategy

The truth is that the rumblings of discontent begin long before an employee starts looking for another job. Employee retention is a long-term project, and involves more than a one-off gesture.

“A lack of promotional opportunities, an uncompetitive salary, a lack of flexibility, poor management style or workplace culture and a lack of new challenges are common reasons why people leave,” McNeill says.

“We don’t recommend counter offers; instead it’s far better for businesses to have a retention plan in place that is reviewed on an ongoing basis. As part of this plan there needs to be regular communication with employees in forums such as one-to-ones, development plans and reviews to establish any concerns they may have and proactively address these before an employee feels like they need to leave and find a new job.”

Kirton agrees: “It’s about talking to your people,” she says. “You need to ask things like ‘What is it that you like about working here?’ and ‘What do we need to improve?’” It’s also critical to follow through on your engagement. “It just makes things worse if you don’t deliver.”

The takeaway

Counter offers aren’t usually a great idea, but with the current climate talent shortages, many businesses see it as their best alternative for retaining employees. Just remember, you’re likely only buying time, as the research shows that people don’t stay long after accepting a counter offer. A far better retention plan is to focus on employee engagement over the long term.

Source: Independent research conducted by Nature on behalf of SEEK, interviewing 4000 Kiwis annually. Published April 2022.