The market is a candidate’s market at the moment, which means we are seeing higher offers than usual and organisations are faced with the decision of whether a counter offer may be appropriate.
As the employer, what you want to avoid is providing a counter offer to an employee if the primary reason they are leaving is NOT related to their pay. Generally there are a host of reasons why people start to look for a new role or are intrigued by an offer that someone has approached them about.
When determining if a counter offer is appropriate you need to start with some investigating and I would start with these three key questions:
1. Has your employee actively searched for a new role?
If they’ve actively searched for a new role, it is unlikely they have done this purely for the money. Generally there will be something else they have been unhappy with. This could be career progression, leadership or team culture to name a few. Have an honest conversation with the employee and their manager to find out what it is they are missing in their current role and if this is something you can satisfy.
2. Has your employee been approached/head-hunted by another organisation or search firm?
If your employee falls into this bucket, it is more likely they were happy in their current role and then yes, a counter offer may be appropriate. However, still do your investigating. If the money were equal would they have still been attracted to the new role. Similar to the above, if there are other factors, determine if this is something you can satisfy internally before making the counter offer.
3. What would a counter offer mean for internal relativities?
Once you have done your investigating, if you are toying with the idea of providing a counter offer, don’t forget to check the proposed salary against the rest of the team, the midpoint of your salary range and also the market data. If you provide an offer that is relatively high and over market, you run the risk of this salary being used as the benchmark for the rest of the team when it comes to the next salary review, resulting in budget blowouts. Additionally, it may fix the issue of the resignation, but will actually create bigger problems down the track with pay gaps and job-grading misalignment.
Of course all of the above can often be avoided by a more proactive and regular discussion with your people to check they are engaged and happy. But in summary, when determining if a counter offer is appropriate, you really need to put the money to the side and determine if there is anything else that’s attracting the employee to move. If there is honestly nothing else, then a counter offer may be appropriate. However, in most instances it’s never just the money.
Remember, money is a hygiene factor, it doesn’t engage. So if you provide a counter offer to someone who is unhappy with other factors, which have not been addressed, all you’re going to end up with is a resignation 6 months later and paying out their annual leave balance at a higher rate of pay.
Alison Mason has over 20 years of experience in both domestic and International markets. A wealth of experience in Australian, New Zealand and Asia Pacific remuneration and incentive programs, mergers and acquisitions, remuneration planning and writing Board Papers. Making the complex simple, building relationships, knowledge sharing and problem solving are key strengths. She also really enjoys creating podcast, This is Reward, where she interviews experts in their field who share their knowledge as it relates to reward.
