Sometimes an employer will make a counter offer when an employee pulls the plug for better pay elsewhere.
And if that employee decides to take the bait, then word gets around about how — with some risk — to pick up extra pay.
However, throwing cash at an employee heading to a new job just doesn’t work and sends the wrong message to staff, according to Australia’s CFOs.
Most make a counteroffer to avoid hiring costs for a replacement, to keep knowledge within the company and because there are too few people able to do the job.
However, counteroffers undermine trust and morale, with word spreading among the staff that they can negotiate more pay if they get an outside offer.
According to research commissioned by specialised recruiter Robert Half, about 9 out of 10 (94%) Australian CFOs will make a counteroffer.
But two-thirds (66%) of those business leaders say their employees ended up leaving the company anyway, with 37% saying the staff member left within six months, 20% saying the employee stayed for less than a year and just 9% cite he/she stayed more than a year.
“Counteroffers are often an immediate reaction to a skilled employee resigning, however offering a purely financial incentive to remain with the company rarely works. It can be a very costly way to delay the inevitable,” says David Jones, senior managing director at Robert Half Asia Pacific.
“With the war for talent and companies actively poaching top employees from competing organisations, business leaders need to proactively address their staff retention measures and not wait until one of their top performers wants to leave the organisation.
“It’s too late then. Managers need to check in frequently with their employees to make sure they’re challenged and satisfied with their career path, as well as regularly assess salaries to ensure compensation is fair.”
The costs related to replacing an employee, including on boarding and professional development are a key driver for 68% of CFOs who have made a counteroffer.
Six in 10 (60%) cite the desire to retain knowledge within the company as one of the main reasons for making a counteroffer, while 40% point to a shortage of skilled finance professionals.
Here are the responses by CFOs:
“Counteroffers set a precedent within any business, undermining trust and morale in the long term,” says Jones.
“Business leaders will send a message to staff that, unless they threaten to resign, their pay rise request won’t be considered. Some may even look around at other jobs merely to be able to renegotiate their employment terms.
“So while staff retention is the key driver for extending a counteroffer, it might actually have the complete opposite effect within the wider business.”
And Jones says employees who feel they are indispensable have little motivation to work harder.
The Robert Half survey of 160 Chief Financial Officers and Finance Directors was conducted in January in Australia.