Counter offers to retain people are like band-aids

There are several downsides of retaining an employee with a counter offer, besides it is not long lasting and the problem recurs soon

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Retention of employees is a common practice. In fact, with a shortage of critical talent, companies are quick to make a counter offer and try to lure the employee to stay back. As a counter offer, companies often offer a raise, a merit increase, bonus, or an opportunity to move to another team.

Counter offers may help resolve an immediate problem; however, how healthy this practice is in the long run is questionable.

“When a talented employee leaves the organisation, after having stayed put in the company for a considerable amount of time, it is often better to let them go,” says Rajeev Singh, CHRO, Solara Active Pharma.

The counter offer may sometimes bring a number of downstream consequences that employers are not likely to have considered if the employee accepts it. Hence, it sometimes does more bad than good!

First, it’s important to address whether the counter offer resolves the core issue or not.

“It’s not just about making a counter offer, but making that person understand how the company can give comfort to him/her,” says Praveen Purohit, Deputy CHRO, Vedanta.

There are three main aspects of a job that any employee considers before moving, i.e. growth prospect, raise, and personal satisfaction. Hence it’s significant for the company to understand the reason behind the resignation and then analyse whether the offer is good enough to keep them thriving as well as happy in the team.

“It’s not just about making a counter offer, but making that person understand how the company can give comfort to him/her.”

Praveen Purohit, Deputy CHRO, Vedanta

“A counter offer should be a win-win situation for both the employee and for the company and it should make sense for both,” says Singh.

He further says, “A company can have retention policies and they may offer their employees a certain percentage of raise in a specified time period.”

According to Purohit , “Retention should not be just money or role based, but it should be mutual. Leaders should have an open conversation with their team members and try to understand their needs and wants by understanding why the person is resigning. A leader’s job is to get to the root cause of the resignation.”

It is also true that counter offers are not sustainable in the long run and hinder the positivity of the ecosystem.

“Companies often forget that countering something is a very short-term prospect and it might come back to them again. For instance, an employee who was retained after giving him/her a compensation raise, might come back again in six months asking for something more. This not only impacts the ecosystem at large but also neglects a conducive and healthy work environment,” explains Purohit.

Only materialistic aspect, which is never permanent, is highlighted in such cases and the actual care and support needed takes a backseat.

As per a study by HBR, 50 per cent of the employees who accept a counter offer are very soon back in the marketplace looking for new jobs. Hence, within a short period of time, the companies too are back to square one looking for talent again.

“Making a counter offer should be a well thought through decision and not just a last moment resolution to anything.”

Rajeev Singh, CHRO, Solara Active Pharma

Promoting someone just to retain the employee at times reflects on one’s leadership capabilities as the leader has to be sure that the employee is set up for success.

For instance, before offering promotion to someone, one may want to evaluate their performance first. Also, it’s vital to see if the new role matches their capabilities and ,if required, a proper training and support is arranged for them to ensure success.

Therefore if the person, for any reason, fails to fulfil his/her responsibilities, it also reflects negatively on the leader and his/her abilities to assess talent.

“Making a counter offer should be a well thought through decision and not just a last moment resolution to anything,” says Singh. He further adds that counter offers are not something that justifies a sudden promotion or raise. This might result in the employees feeling that they are getting a raise as a favour from the company. Hence their performance should serve as promotion criteria and not the resignation.

Making a counter offer to one employee may also affect the morale of the existing team. When the resignation is made public, and others come to know that a colleague unexpectedly receives a promotion or a new role when they weren’t due for one, it can negatively impact the team morale.

“Talent retention is an integral part of a company’s people strategy. Given the dynamic nature of the talent market, a company needs to use both proactive and reactive approaches to retain talent.”

Richard Lobo, EVP and Head HR, Infosys

It becomes a reason for gossip among team members and may serve as the key start for more resignations that the company may expect.

Singh states, “It’s a chain effect.”

Richard Lobo, EVP and Head HR, Infosys has a different perspective on this. “Talent retention is an integral part of a company’s people strategy. Given the dynamic nature of the talent market, a company needs to use both proactive and reactive approaches to retain talent.”

“The ideal way to do this is by using analytic tools to map your talent and then come up with a data driven approach. As long as the retention offer is based on fundamentals such as client value added, market compensation, individual performance, skills, and so on, it will not cause a disruption within teams and will be seen as a fair approach,” he suggests.

However, as part of the approach, it’s also important to cover others who fit into your retention criteria and not only those who have resigned, he concludes.

Counteroffers may seem like they’re the perfect resolution to tackle an uncertain resignation, however they end up being just short-term healing band-aids.

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