Written by Reality HR and Langdowns DFK | 15th November 2023
It can be stressful to lose an employee, especially if they play a significant role in the business.
Making a counter offer, such as a better salary package or additional paid holiday, can seem like the only solution to prevent an employee from leaving.
Employee turnover rates in the UK have risen 9% since 2019 to 36%, and in an effort to retain employees, employers are ramping up counter offers, with some offering salary rises of up to 25%, according to reports.
Here’s why we recommend avoiding counter offers and how else you can support employee retention.
Counter offers are a short-term solution
CIPD research discovered that almost a third (29%) of employers said counter offers were ineffective at keeping people in their organisation.
Langdowns DFK said: “Counter offers are increasingly being made to keep staff who are tempted by higher wages, but this may only be effective in the short-term. Employees may still leave if the wider package does not meet their expectations, and this puts more pressure on employers to increase salaries to keep up with the current job market.”
In addition, if an employee has resigned after accepting another position elsewhere, it is likely they have already mentally left the business and will leave regardless.
They don’t address underlying issues
A counter offer doesn’t address the underlying issues with retention. For example, if your employee has decided to leave because of burnout or to escape a negative working environment, they may accept a counter offer but find their issues persist, so they end up leaving a few months or a year down the line.
Culture is also important for employees at every level. If employees feel they are being constantly monitored, unsupported by their managers or that they are not valued in the business chances are they will look for another position elsewhere. Read our culture guide for support reviewing and rebuilding your workplace culture.
Global research by Microsoft discovered that pay was at the bottom of the list of reasons why employees quit their jobs in 2022, with work-life balance and lack of flexible work hours/location at the top.
You may also want to consider that different generations would feel motivated to leave or stay in a company for different reasons. While Gen X is generally more focused on work-life balance, Gen Z prioritise wellbeing, flexibility and an inclusive company culture over salary. You can read more about managing a multi-generational workforce in our guide.
They set a precedent in the workplace
A counter offer may be effective in the short-term, but this could set a precedent throughout the company, resulting in further resignations from employees who want the same salary increase, promotion or benefits offered to their colleague.
Morale could also take a hit and lead to tension and resentment within your team as employees become jealous of the individual you went to great lengths to keep.
How can you avoid counter offers?
Ultimately, you should strive to create an environment where employees feel valued and want to stay. This includes providing a competitive salary, excellent benefits, frequent recognition and a clear career path from the outset. Making these available when somebody decides to leave is likely to be too little, too late.
- Check salary levels
Do you regularly benchmark your employee pay rates for all roles? Are your managers who are making decisions about pay confident and capable of making those decisions fairly?
You should benchmark employee salaries regularly, against others in the organisation and industry averages, prior to any conversations about pay rises or making counteroffers.
Langdowns DFK said: “As well as benchmarking against other employee pay in your organisation, you should consider the rates your competitors’ pay at, as well as regional differences, the level of demand for the skills your employees have and any changes in their roles in the past year.
“Thinking about the current jobs market in your industry can help you to work out whether you’re offering the right rate to retain talent.”
- Understand your employees
To engage and retain your employees it’s important to understand their needs and preferences. Flexible working, job stability, extended holiday and wellbeing initiatives are just some of the perks and benefits that employees are looking for right now and can go a long way to improve retention.
If employees do decide to leave, take advantage of exit interviews, as they can help you gain a deeper understanding of your employees and why they are leaving the business.
You need to establish why they want to leave. As we mentioned above, it’s rarely down to just money alone, and there are more deep-rooted issues such as a lack of career progression, or need for fresh challenge. Stay interviews can be held with your employees to understand what they value about their role and help you to uncover the issues that might be holding them back – or driving them to resign.
- Invest in employee development
One of the keys to retention is to spend time ensuring that every employee has access to training, development and career progression. Not doing this increases your risk of losing talented employees and giving you the headache and additional cost of finding a replacement.
What’s more is that many employees say opportunities to grow is a reason to stay at their job or go after another. To improve this, you want to give them time and resources to learn in areas to expand their careers. Keep your employees engaged by finding out how they’d like to develop in the business and work with them to identify opportunities for growth in that direction.
If you have any questions or would like support developing a retention strategy, please get in touch with our team at [email protected]