23 Sep Why Counter Offers in Compensation Negotiations are Counter Intuitive
By Janet Koechel – Paradox Compensation Advisors
Your most talented employee just turned in his or her resignation when offered an increase in more pay from a competitor – what do you do? Make a compensation counter offer and boost their salary without consulting HR or bid them adieu and tell them the door is open if they decide to return?
By making a counter offer, most managers are only delaying an evitable resignation down the road. Furthermore, if other employees hear that a co-worker negotiated an out-of-cycle increase expect compensation chaos to erupt, internal equity to be quickly eroded and morale to decline.
Current Context: Employee Turnover and Salary Negotiating Leverage of Employers
One of the toughest challenges facing companies today is retaining and engaging employees. The recent 2015 Emerging Workforce Study conducted by Harris Poll showed that 33 % of employers surveyed list turnover and retention as their top concern. Many forecast that turnover will increase as the economy improves and unemployment is reduced.
Historically, most companies have a firm rule that they do not negotiate with employees over salary. Since 2008, employee loyalty has also eroded as the economy declined and massive layoffs resulted in employees feeling disengaged and vulnerable. In addition, salary expense budgets have been flat for the past 10 years and the average employee doesn’t feel rewarded with a paltry 3% increase in base pay. Many workers feel the only we to get ahead is to leave, i.e. they have more salary negotiation leverage with a new employer.
Top Reasons for Employee Turnover
According to the Society for Human Resource Management, the top reasons for employee turnover in today’s labor market are:
- Unhappy with current salary
- Lack of flexibility – no work/life balance (overworked)
- No opportunity for advancement
- Not feeling valued – lack of recognition
- Unhappiness with management
The Hard Facts: Employee Salary Counter Offers
- Employees who accept counter offers typically leave within a year anyway
- Employees know when co-workers receive out of cycle raises – “salaries aren’t secret”
- Opening the door for salary negotiation sets a dangerous precedent
- Unless all employee concerns are addressed – not just salary – your other top performers may eventually resign too
Solutions for Employers: Recommended Approaches
- Evaluate your total rewards package (base pay, incentive opportunities, benefits) and synchronize it with the practices of your industry, the needs of your business, employee feedback and good business practice
- Build an effective communication plan to improve employees understanding of total rewards
- Caution senior management against succumbing to “salary-offer blackmail”
- Encourage your management team to cross-train employees to avoid having only one employee with unique knowledge of a product, system, customer, etc.
- Caution employees and managers about using salary information out of context. Explain that free online salary information may not be reliable.