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We have all heard the term “war on talent,” which refers to the competitive challenge of attracting and retaining talent. A counteroffer may be part of your organization’s answer to this challenge. Read on to learn more.

What Is a Counteroffer?

A counteroffer can be a rejection (of an initial offer) and/or acceptance of something added to an initial offer. In essence, it is a modification of the initial offer.

Usually, a counteroffer is part of the initial hiring process, but it can also come into play during promotions, to try and retain an employee who is leaving, or in other circumstances when an employee makes a request to change the conditions of their employment.

Whenever your organization makes an employee an offer and the employee responds with a request to change that offer, your response to them may be no, in which case the negotiation is over, or you may respond with a counteroffer that gives the employee all or some of what they’ve asked for.

When Are Counteroffers Appropriate?

Organizations considering counteroffers should consider the pros and cons of doing so, as well as the goals you are attempting to accomplish.

Pros of Offering Counteroffers

  • Retention tool. A counteroffer is one of many tools to retain talent. Compensation is generally an important factor, but it is not the only factor as to whether your employee stays or leaves.Increasing an employee’s salary with a counteroffer shows that you appreciate, value, and acknowledge the employee’s contributions.
  • Increased morale. The key to the success of every organization is its employees. When your employees are happy and motivated, they are more likely to be more productive. Counteroffers may boost your employees’ morale by giving them at least part, if not all, of what they asked for.

Cons of Offering Counteroffers

Sadly, when it comes to extending a counteroffer, there are more cons than pros. We will explore a few below.

  • Unresolved challenges. Unresolved or poorly managed conflict is a challenge many organizations struggle with. Conflict within the workplace requires attitude and behavioral changes, and counteroffers do not address these issues. For example, let’s say an employee is facing difficulties with their manager, who is a micromanager. S/he seeks employment elsewhere. An offer is made, and your organization counters with a higher salary. This may resolve the situation, but the behavior of the manager has not been addressed, and tension is likely to rise again.
  • Retention.  Unfortunately, when an employee accepts a counteroffer, there is no guarantee that the employee will stay long-term. Officevibe found that only about 12% of employees leave an organization for money; therefore, your employees may be leaving for other reasons, such as their relationship with their manager.
  • Relationship challenges. Counteroffers may damage the employee/employer relationship. If you are not able to meet the employee’s request, the result may be low morale and lack of employee connection. The Society for Human Resource Management reported that a whopping 60% of managers believe that employees are replaceable; in addition, 45% considered counteroffers to be short-term solutions.

Best Practices When Presenting a Counteroffer

There are a few best practices that every organization should consider when presenting a counteroffer.

Budget.  Knowing your budget helps the organization as whole to meet goals, communicate expectations, and control items such as revenue and expenses.

Alternatives. Though salary is the number one component of a counteroffer, it is not the only option. Consider alternatives such as paid tuition reimbursement, partial or full remote work, more paid time off, etc. Be creative when trying to meet at least part of the employees’ request.

Thoughtfulness.  When presenting a counteroffer, consider the needs of others. Don’t make an offer that can be viewed as insulting.

How Companies Can Negotiate With Counteroffers

In many cases, your organization may be able to meet the employees’ or candidates’ requests, but of course there are instances in which you cannot. Below are a few tips on how your organization can negotiate counteroffers.

Practice 1: Conversation 

Communication is the foundation to build trust, loyalty, and increased performance. It’s imperative to have a conversation with your employee to determine what their challenges and needs are. The conversation helps with the negotiating process because you’re able to determine what your mutual interests are and where common ground may be.

Practice 2: Weigh Your Options

Counteroffers do not always have to be monetary. For example, consider a flexible work schedule for those employees who may be experiencing challenges with transportation. Or if an employee wants to go part-time and that won’t work for your organization, perhaps you could offer a partially remote-work solution.

Practice 3: Be Prompt

Whether or not your organization has decided to counter an offer, it is imperative that you respond to the employee as quickly as possible. For example, if the employee is likely to accept another offer, you’ll want to know if your offer is accepted or not so that you can move forward with a replacement if needed.

Practice 4: Follow Up

As part of your response, provide a reasonable amount of time (48-72 hours) for the employee to respond.

Regardless of the outcome of the negotiation, try to end it on a positive, professionally caring note. If the employee decides to leave, be gracious and appreciative of their work for the company.

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Questions You’ve Asked Us About Counteroffers

Whether a counteroffer makes a company look weak depends on a number of things. Why was the offer made? What was communicated to the employee? Is the goal of the organization being met?
Counter offers should be used when it is the best option for the organization.
To determine what the counteroffer should be requires you to be clear on the needs of both the employee and the organization. For example, an employee may simply be interested in additional professional development training vs an increase in salary.

Wendy is a HR professional with over 10 years of HR experience in education and health care, both in the private and non-profit sector. She is the owner of KHRServices, a full service HR management agency. She is also SHRM and HRCI certified, serves as a HRCI Ambassador, and voted 2021 Most Inclusive HR Influencer.

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