Counteroffers: How to Make It a Compelling Employee Retention Tool?

Volodymyr Bilyk
01 November 2021

The rise of employee retention counteroffers in recent years is easy to understand. The current market situation requires building solid teams with high-profile talent. As a result, companies are willing to compete for high-profile IT specialists and offer bigger salaries and better benefits. 

  • Because of that, making a competitive counteroffer became a significant challenge.  

Earlier in the year, we conducted a salary survey market analysis. During the research, we have found out that due to competition in the Ukrainian IT segment, counteroffers became a more common way of retaining tech talent than recurring salary reviews and other methods. 

This article breaks down how to make a compelling employer retention counteroffer. 

What are Employee Retention Counteroffers?

Counteroffers: How to Make Employee Retention Effective?

In plain and simple terms, the employee retention counteroffer definition in a recruitment context goes like this:

  • A counteroffer is a preventive measure designed to respond to the initial offering. In one way or another, it is a response to a scenario in which your employee receives a job offer from the competition and means to accept it.
  • The goal is to retain an employee by making him change his mind.
  • As such, it is a type of business negotiation tactic in which an employee provides an opportunity for companies to compete for his services.

Counteroffers employee retention is one of those tools that seem clear-cut and yet challenging. 

  • On the one hand, it is a result of the competition for tech talent. 
  • On the other hand, it is a direct consequence of the company not meeting employees’ expectations and requirements, thus prompting them to look for better prospects elsewhere. 

It is easy to see why providing counteroffers seems more attractive than simply hiring new employees (even with a cost-effective recruitment process in place). 

What Are Counteroffer Goals?

On the surface, it seems pretty evident that counteroffers revolve around deflecting the competition’s efforts to poach your employees. According to Forbes, the costs of replacing tech talent may go up 1,5-2 times. That is a lot of resources, and because of that, it makes sense to try to go the other way.

However, that’s only the tip of the iceberg. In reality, arranging counteroffers pursues several critical goals.

Let’s take a closer look at them:

  • Keeping talent away from competition and employee retention are the top priorities of providing a counteroffer. 
  • Retaining employee job knowledge is another facet. The employee is well-acquainted with the job’s ins and outs and possesses the inherent insight into driving results.
  • Workflow efficiency – to save time, money, and efforts required to hire a replacement.  Some employees are hard to replace due to experience, niche specifics, and other factors.
  • Management efficacy – preventing team overload and burnout and not causing further pressure.

 

How to Make Compelling Employee Retention Counteroffers?

How to Make Compelling Employee Retention Counteroffers?

A compelling counteroffer is a matter of reiteration and reconsideration. The thing is – you already have a foundation in place. It doesn’t work all the way through, but it is already there, and you can do something about it. That’s your advantage against the competition. 

However, providing a counteroffer doesn’t mean instant mission accomplished as numerous factors sway the decision in either direction. 

  • According to a recent LiveCareer study, over 35% of employees reject counteroffers no matter their content. 
  • In other words, the preceding context impacts counteroffers effectiveness. 

Because of that, it is essential to understand why your employee might find a competitor’s offers attractive. 

Here’s what you need to know to arrange a compelling counteroffer.

Why do Counteroffers Happen? Are Counteroffers Inevitable?

The need for employee retention counteroffers doesn’t come out of nowhere. In one way or another, it is a result of several internal and external factors.

Let’s look at both sides.

Internal factors

The need for counteroffers has its roots in the unrealized or inefficient employer value proposition. 

  • Lack of career development – employees tend to overgrow their positions over time. It is a great challenge to provide proper career opportunities for different employees;
  • Low compensation and lacking benefits – aka the tangibles. Salary and benefits are integral in maintaining employee motivation and showcasing their recognition and appreciation.
  • General employee dissatisfaction. A combination of minor factors piling up to the critical mass makes further work unbearable.
  • Continuous negative experience. Work-related issues are decisive in building up motivation to change jobs. Such things as being passed over for a promotion. Or not being recognized for some accomplishments can kick you in the back after a while. 
  • Toxic work environment – such things as unfair treatment, harassment, and downright bullying contribute to not wanting to work at the current workplace;
  • Poor work-life balance – this factor is very tricky as it is something you can’t influence but can assist in mitigating its effects. One thing is for sure – it is never a good idea to encourage your employees to work more than they should;
  • Burnout – the continuation of poor work-life balance – unlike the former, it is never the main reason, but always a decisive contributing factor;

External factors

It is important to note that external factors are intertwined with internal factors but should be taken on their terms. 

  • “Same but better” alternative – a combination of internal factors generates a situation where any other option seems more attractive than the current one. 
  • Company prestige (also known as the WWE factor). The company has a better profile and reputation than its current employer, and having a stint there will provide better career prospects in the future. 
  • Better salary/benefits – you know the one that is “nothing personal, just business.” Sometimes, all it takes to persuade an employee is to offer a significantly higher salary for a similar scope of work. 
  • Wanting to try something new – in this case, the employer’s brand and value proposition got nothing to do with the employee’s intention to leave. However, such cases also provide an opportunity for returning ex-employees.

What does Employee Retention Counteroffer Need to Consider?

How to Make Compelling Employee Retention Counteroffers?

Employee retention counteroffers cover all sorts of employment-related subjects. But, usually, the main topic of the counteroffer revolves around money – salary, bonuses, stock options. 

But other things may come up during the negotiation too. Because of that, one needs to be aware of all possible subjects. 

Here are some of them:

  • Employee compensation, salary raises – the most common and straightforward subject. During our 2021 Q1-Q2 Salary Survey, we’ve noticed a pattern of 20-30% salary raise due to a counteroffer ;
  • Bonuses, stock options, etc. – this topic extends the compensation subject and usually comes up in conjunction with it. From the retention point of view, it is additional firepower;
  • Career opportunities, promotion, upskilling – this one is tricky as it requires more efficient rethreading employee value proposition with the plausible course of action;
  • Employee benefits and perks – never the main topic of discussion, but an important one in wiggling the specifics. ;
  • Work schedule and quality-of-life improvements: remote work opportunities, home office equipment, flexible schedule, more vacation or sick leaves, etc. 

What Really Sells Employee Retention Counteroffer?

There are several informal guidelines to a recipe for making a counteroffer effective and selling it to the employee. 

Here’s what it means.  

  • A reasonable counteroffer isn’t a makeshift fix. It is a well-balanced and structured toolkit that you can use in several scenarios. It is not like you can’t predict why your employees might want to leave (at least if your HR department is doing its job). Because of that, it is crucial to have transparent guidelines and policies that shape counteroffers.
  • At its heart, a compelling counteroffer addresses the reasons to leave and mitigates its impact. It is not about giving an employee what he wants but making the opportunities and possibilities tangible and plausible.
  • The other important aspect is to keep things quiet about it. The thing is – providing a counteroffer is a disruption. While it is a justified action, it still has its impact on the organization. Because of that, it is critical to keep the counteroffer’s details under cover of the non-disclosure agreement. Otherwise, news of someone getting a raise because he would leave might get somebody else upset.

In conclusion

A counteroffer done right is a powerful tool for retaining employees, doing course correction, and strengthening loyalty. 

As you can see from this article, making a compelling counteroffer requires a bit of groundwork and research, but it will definitely pay off if you put in an effort.

In our next article, we will look at things from the recruiter’s point of view and will discuss methods of retaining candidates with counteroffers.

If you need help with fine-tuning your employee retention strategies and counteroffer value proposition – our consultants can help you out.

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