Article: Show me the money - How HR should handle counter-offers

Employee Relations

Show me the money - How HR should handle counter-offers

There is a growing trend amongst organizations to offer counter offers to employees to retain them. What is the role of HR in containing this trend.
Show me the money - How HR should handle counter-offers

Ram is a Manager in XYZ limited and has been a star performer for the last 2 years. He has recently resigned to join competition and is getting a 50 % hike on his current salary. Ram’s manager approaches HR with his track record and how he has helped the firm in last 2 years and why he is an indispensable resource for the firm. He wants to retain Ram by making a counter offer and match what he is expecting to get from the other firm. After some discussion with HR (and some to and fro), a counter offer is made and Ram revokes his resignation.  The HR team treats this as an exception and advises Ram’s manager to avoid cases like this in future. 

Sounds familiar?

There is a growing trend amongst organizations to offer counter offers to employees to retain them. According to a recent report, an increasing number of candidates are learnt to be responding positively to counter-offers by their existing organizations. 

Increase in cost to hire and compensation levels at the time of re- hiring are one of the major reasons driving this trend.  The report also cited that the percentage of candidates declining a job offer following a counter offer has jumped to about 20 – 25 %. This essentially translates to 1 in every 4/5 offers you make will get rejected because the current company made a counter offer to your prospective employee.

Employees are also not shying away from collecting offer letters with intent to bargain with their current firms for a better deal than to settle for an average increase year on year. 

The business may argue that this is the need of the hour and hence makes a business sense; HR may on the other hand argue that this is setting precedence / expectations for exceptions in future. Agreed, that it’s hard to answer this with absoluteness wither way; however this definitely raises questions about a lot of other things including but not limited to engagement levels, culture of the organization, succession planning etc. 

Does an employee who gets an offer from the market with intent to bargain internally for a better deal truly engaged? Are we not better off letting that employee go? Research shows that even if you are able to retain an employee through a counter offer, chances are he/she will still leave you in next 12 – 18 months.  As an organization, do we want to create a workplace where we have employees or do we want brand ambassadors for our organization? Isn’t this approach making the relationship with employee purely commercial?

Given the context, what is the role of HR in containing this trend (given that we want to) 

  1. Create relationships with employees which is NOT just commercial – Money has been a will continue to be an important factor in employee attraction and retention; however, if it becomes the dominant factor then it will be difficult to move beyond a commercial relationship. Operating beyond a certain point with only cash as the hook will be difficult and will not make financial sense.

  2. Succession planning – It’s good to talk about succession planning and it’s even better to really practice this in reality. Once the business starts seeing return on this investment is when they will appreciate these interventions. Their conversations with their teams will become far more open and confident. 

  3. Commonly understood and practiced values – This is a tricky one to get, however, is most effective.  This will put an organization in a state where there is no ambiguity in decision making as everyone will know what can / should be done and what cannot / shouldn’t. Decision and communication with employees will be more consistent and at the same time will empower managers. In the above case study, the organization can go either way (i.e. to let go or to retain) but the decision will be one which doesn’t raise an eyebrow.

  4. The clock doesn’t stop ticking – We need to be as an organization humble enough to accept employee exits. While we should be making all the efforts to have interventions to create employee stickiness, there will be critical employees who will still leave, we need to start looking at such events as an opportunity for next in line colleagues.

And by the way Ram left the organization after one year to join the same firm for which he had earlier declined the offer. Needless to say, he went on a package much higher than what he was bargaining for a year back. 

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Topics: Employee Relations, Compensation & Benefits, #HR Ready

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