Bosses beware: Counteroffers don’t achieve retention

  • 59% of surveyed Australian bosses are willing to extend a salary increase when making a counteroffer to retain an existing employee with the average increase being 9% of the employee’s existing salary.
  • 52% of employees who accept a counteroffer leave in a year or less. Of this, 1 in 5 (19%) leave in less than 6 months.
  • 89% of leaders intend to continue extending counteroffers to retain employees in the future.

In today’s competitive job market, skilled professionals are hard to come by and business are eager to retain their top talent. At the same time, businesses are witnessing an increase in employee churn amongst their top talent as companies are actively poaching staff from their competitors. Retention remains a key concern for Australian businesses, with 82% of surveyed leaders concerned about retaining employees in 2021 .

In order to retain top talent who have been presented with a contract or position at another organisation, 6 in 10 (59%) Australian business leaders are willing to make a counteroffer, new independent research by specialised recruiter Robert Half reveals. In doing so, employers are willing to extend a 9% salary increase on average, with 19% of respondents offering a salary increase if 20% or more.

Why do companies use counteroffers?

Some of the main reasons a company would issue a counteroffer to retain an employee include: to avoid losing an employee with hard-to-find skills; to avoid losing a tenured employee with knowledge of the company; to avoid the cost of high turnover; and to compensate for having no time to recruit and hire a new employee.

“Counteroffers are more often a tool to help the employer. Particularly in a competitive market, it can be tempting to make counteroffers in order to retain institutional knowledge and avoid the resource intensive exercise of recruiting, onboarding, and training a new employee,” says Nicole Gorton, Robert Half Director, in announcing Robert Half’s latest survey results.

“However, the fact that it’s designed as a tool for the employer, rather than the employee, is exactly what makes counteroffers an ineffective retention strategy. While offering a salary increase may seem like a cost saving initiative, a counteroffer doesn’t necessarily advance the career of the employee so – more often than not – the employer is still left with a dissatisfied employee who was motivated to leave the organisation in the first place.”

Counteroffers do not ensure employee loyalty

Although it may seem like an efficient solution to retain employees when the job vacancy rates are at record-high rates , counteroffers rarely end favourably for managers. More than half (52%) of employees who accept a counteroffer leave in a year or less. Of those, 1 in 5 (19%) leave in less than six months.

Despite the additional expense and short-term effect counteroffers have on retention, almost 9 in 10 (89%) Australian business leaders intend to continue extending counteroffers to retain employees in the future.

“Counteroffers are an additional employer expense, yet for more than half of employees, the return on investment is just 12 months or less of additional employment. In a competitive market such as this one, that 12-month delay can substantially diminish the availability of skilled talent to replace the role. Moreover, it simply delays – rather than saves – the costs associated with recruiting new talent to fill the vacant position,” says Gorton.

“Rather than relying on reactive counteroffers to address staff retention, business should be looking at their existing retention strategies as a proactive mechanism to ensure employees feel satisfied, valued, and therefore less likely to court competing offers.”

“This includes conducting regular salary reviews to ensure their compensation is competitive, establishing clear career paths with individual employees to help their progression and reduce the appeal of a competing title change, and offer flexible working arranges to support employee work-life balance,” concludes Gorton.

Robert Half outlines four reasons why counteroffers aren’t an effective retention strategy:

1. A salary counteroffer isn’t a long-term remedy: Even a valued and rewarded employee can be ready for change. A higher salary won’t address if an employee feels disinterested in a role or industry, unmotivated to pursue growth, or out of touch with the company culture or management style so a counteroffer often simply delays the inevitable.

2. It can have a negative ripple effect: Once one employee leverages another job opportunity for a raise, it opens the floor for others to do the same. This can result in staff dissatisfaction amongst those not receiving salary increases, more counteroffer negotiations, and salary increases for employees who follow suit and can even catalyse more departures as the alternative job offers materialise into new opportunities.

3. A counteroffer can cause a dip in morale: By tendering a counteroffer, businesses send the message that threats of leaving are a means of climbing the ladder, rather than outstanding performance and dedication. When the news of a successful counteroffer negotiation and salary increase gets around — and it will get around — it can generate feelings of favouritism or dissatisfaction.

4. It could cause a rift in trust: Using counteroffers as a negotiating tool can send a message of disloyalty which can tarnish employee trust – both within the team and amongst leadership. Moreover, an employee who is motivated by salary alone may not develop or evolve their skills as quickly as one of who is pursuing career growth and new challenges.

About Prof Janek Ratnatunga 1129 Articles
Professor Janek Ratnatunga is CEO of the Institute of Certified Management Accountants. He has held appointments at the University of Melbourne, Monash University and the Australian National University in Australia; and the Universities of Washington, Richmond and Rhode Island in the USA. Prior to his academic career he worked with KPMG.
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