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The Downsides of Making a Counteroffer to Retain an Employee

The counteroffer isn’t a one-size-fits-all solution to stopping good employees from leaving your organization. If people are ready to move on, sometimes the best decision may be just to wish them well in their next opportunity.

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Source: HBR.org/ Mita Mallick

During the Great Resignation, large numbers of employees have said “I quit” and moved on from their organizations. As the talent pool shrinks, leaders are prepared to do just about anything to keep good employees from walking out that door. The counteroffer is one retention tool at leaders’ disposal.

In fear of losing an employee, a leader may counter with a promotion, a merit increase, a one-time bonus, equity grants, or an opportunity to move to another team. But leaders, beware the perceived power of the counteroffer. Based on her experience leading teams, the author presents a number of downstream consequences you likely haven’t considered if the employee accepts. Here’s why making a counteroffer to an employee who has resigned can do more harm than good.

In this job market, employees continue to hold a considerable amount of leverage while leaders scramble to backfill roles and find talent with the needed skillsets. As the talent pool shrinks, leaders are prepared to do just about anything to keep good employees from walking out that door.

The counteroffer is one retention tool at leaders’ disposal. The idea of the counteroffer may make a leader temporarily feel like they’re back in control of the situation and that they’re making the best decision for their team and organization.

Here’s why making a counteroffer to an employee who has resigned can do more harm than good. It likely doesn’t address the underlying issues.

Ask yourself if a counteroffer addresses the issues underlying why the individual resigned in the first place. Is it enough to keep them happy and thriving on your team? Or is it just a temporary band-aid to avoid solving a larger issue?

“If you extend a counteroffer to an employee, it should be well thought through and not just a moment of desperation to hold onto talent,” says Jill Katz, founder and chief change officer of Assemble HR Consulting. Katz continues:

A counteroffer should make sense for the employee and for the company. Is it really about a promotion or more money? Or is it about excessive workload and their interest in managing more direct reports? Oftentimes a counteroffer doesn’t address the real reason why the person is resigning. Your job as the leader is to get to the root cause.

Katz also has a warning for leaders who use the counteroffer instead of having difficult or uncomfortable conversations. “If they accept the counteroffer, it’s very likely they will resign again in the future. Research shows that 50% of candidates who accept a counteroffer are back in the marketplace looking again in two months. The novelty of this solution can wear off and they can be a flight risk. And then you are back in the same spot looking for talent again.”

It may seed doubts about your leadership capabilities.
The outcome of a counteroffer can ultimately become a reflection of your leadership capabilities. If you ask someone to stay after they’ve resigned, you have to be sure they’re set up for success.

For example, if you offer a promotion as a counteroffer, you must ask yourself if the individual is ready for the promotion. If they’re offered no additional support or training to step into the new role, you may set them up to fail. You have to be able to defend your decision to human resources, your boss, management, and other key stakeholders. Not only will poor performance reflect poorly on the employee, it will also reflect poorly on you and your ability to assess and coach talent.

Further, if the person can’t perform in the new role, they may end up exiting the organization by choice or being asked to leave. In either case, you’re left again with an opening on your team, and now, damage to your leadership brand within the organization.

It can negatively impact team morale.

When a colleague unexpectedly receives a promotion or a new role when they weren’t on track to receive it, this can start to negatively impact team morale. It can cause gossip among the team, with speculation as to how and why it happened. It can also erode respect for the individual if others don’t feel they deserved the promotion and ultimately devalue it.

“What leaders don’t realize is how the counteroffer can backfire and have a ripple effect across the team,” says Felicity Hassan, talent advisor at Core Innovation Capital and board member for Women Business Collaborative. “It can be a driver for others to start looking outside the organization, and then, you may be confronted with more resignations than you expected.” Hassan advises leaders to consider the impact of stopping one person from leaving versus focusing your energy on ensuring the rest of the team is energized by their work and aren’t flight risks.

Remember that during the Great Resignation, talent will continue to reassess their employment opportunities. The counteroffer isn’t a one-size-fits-all solution to stopping good employees from leaving your organization. If people are ready to move on, sometimes the best decision may be just to wish them well in their next opportunity.

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