Why employers’ last-minute retention measures can be detrimental

Employers run risks retaining employees with lavish counter-offers.  

The war for talent has not only provided professionals an upper hand in choosing jobs, but also made organisations more talent-focused. Most businesses fear losing the best of their talent and ensure they are well guarded. Despite that, the sad reality is that at times organisations may take some people for granted, realising their true potential only when they actually plan to quit.

While it is always wise to retain when there’s still time—and not when things start moving out of control— there is no dearth of cases where resigning employees are offered lucrative retention offers as a desperate measure. A leaving employee may be offered a long-due promotion or a pay hike as a counter-offer for retention, making the whole deal a ‘retention via ransom’ act. Such last- minute measures may prove harmful in many ways.

“A retention bonus or a lucrative counter-offer is similar to a double-edged sword.”

Ramesh Mitragotri

Ramesh Mitragotri, CHRO, UltraTech Cement, says, “A retention bonus or a lucrative counter-offer is similar to a double-edged sword. By offering them, organisations could either be creating mercenaries who know that they are now in a position to bargain for anything they want, or they could completely lose trust making the employees feel as if they were being taken for granted until now.”

It may not be completely incorrect on the part of an organisation or an employer to offer a retention bonus or special offer, as companies ought to do so in order to save various other costs involved in losing and replacing critical employees. However, it so happens that, “HR at times is unable to see the big picture and take decisions that may or may not be the best in the longer run,” says Emmanuel David, director, Tata Management Training Centre TMTC, Tata Group HR.

Ramesh Mitragotri, Emmanuel David & Kamlesh Dangi

David is of the view that when an employer does offer a retention deal, the other people, who are watching socially will perceive the organisation accordingly. He further explains that HR or the employer runs two kinds of risks in retaining an employee with a lavish counter-offer —if the retained employee does not perform as expected after being retained, it can put HR in a bad light; also, if the retained employee leaves soon after being promoted or accepting a raise, it can get even more embarrassing for HR or the organisation.

“HR should know the pulse of their staff and should be able to gauge if they risk losing some employee and take proactive measures instead of reactive ones. The key is to have honest and transparent conversations with the employee much in advance before a situation arises,” David opines.

“HR at times is unable to see the big picture and take decisions that may or may not be the best in the longer run.”

Emmanuel David

Kamlesh Dangi, group president-HR, UTI AMC-?UTI MF, explains that organisations that have fair and frequent well-established reward mechanisms do not even need to engage in counter-offers. “They can simply talk employees out in terms of their growth path and other potential benefits, and make them stay with the organisation, rather than enticing them with short-lived materialistic offers,” he says.

However, there are certain organisations, which operate in extremely volatile industries—in terms of talent movements— and may need to be opportunistic in situations where a critical employee is considering an exit. For instance, in an organisation where losing a specific employee could mean impacting a whole project or losing out on a customer account, the company may try to retain that employee at any cost. Nevertheless, in a stable and balanced setup, such a situation may not even arise in the first place.

“Organisations with fair and frequent well-established reward mechanisms do not even need to engage in counter-offers.”

Kamlesh Dangi

Mitragotri also believes that if an employee is so critical to the organisation, it should reflect in every way—rewards, talent development or growth opportunities offered, and so on. “If an employee is critical to an organisation or a project, then it should make sure that this employee does not even feel the need to leave. Retention should not happen after an employee has resigned, but should ideally begin much before that,” he concludes.