The Downsides of Making a Counteroffer to Retain an Employee

“If you think you should get promoted, you should go get another offer in the market,” a former boss once told me. “That’s the fastest way to get promoted and get paid more,” they added. “And right now, that’s the only way you’re going to get promoted.”

Over the course of my career, I’ve watched counteroffers play out on various teams. I remember the associate brand manager who jumped two levels in less than two years after “resigning” to two different bosses. I remember the colleague who had told everyone his resignation news, only to then stay and get the role I was up for. I remember the woman who got one of the most coveted VP jobs in our organization. A colleague later revealed to me, “Oh, she fake-resigned. She used another offer to help her get the promotion.”

During the Great Resignation, millions of Americans have said “I quit” and moved on from their organizations. In this job market, employees continue to hold a considerable amount of leverage while leaders scramble to backfill roles and find talent with the needed skillsets. As the talent pool shrinks, leaders are prepared to do just about anything to keep good employees from walking out that door.

The counteroffer is one retention tool at leaders’ disposal. In fear of losing an employee, a leader may counter with a promotion, a merit increase, a one-time bonus, equity grants, or an opportunity to move to another team. The idea of the counteroffer may make a leader temporarily feel like they’re back in control of the situation and that they’re making the best decision for their team and organization.

But leaders, beware the perceived power of the counteroffer. Based on my experience leading teams, there’s a number of downstream consequences you likely haven’t considered if the employee accepts. Here’s why making a counteroffer to an employee who has resigned can do more harm than good.

It likely doesn’t address the underlying issues.

Ask yourself if a counteroffer addresses the issues underlying why the individual resigned in the first place. Is it enough to keep them happy and thriving on your team? Or is it just a temporary band-aid to avoid solving a larger issue?

“If you extend a counteroffer to an employee, it should be well thought through and not just a moment of desperation to hold onto talent,” says Jill Katz, founder and chief change officer of Assemble HR Consulting. Katz continues:

A counteroffer should make sense for the employee and for the company. You have to ask yourself if this counteroffer addresses why they resigned in the first place. Is it really about a promotion or more money? Or is it about excessive workload and their interest in managing more direct reports? Oftentimes a counteroffer doesn’t address the real reason why the person is resigning. Your job as the leader is to get to the root cause.

Katz also has a warning for leaders who use the counteroffer instead of having difficult or uncomfortable conversations. “If they accept the counteroffer, it’s very likely they will resign again in the future. Research shows that 50% of candidates who accept a counteroffer are back in the marketplace looking again in two months. The novelty of this solution can wear off and they can be a flight risk. And then you are back in the same spot looking for talent again.”

It may seed doubts about your leadership capabilities.

The outcome of a counteroffer can ultimately become a reflection of your leadership capabilities. If you ask someone to stay after they’ve resigned, you have to be sure they’re set up for success.

For example, if you offer a promotion as a counteroffer, you must ask yourself if the individual is ready for the promotion. If they’re offered no additional support or training to step into the new role, you may set them up to fail. You have to be able to defend your decision to human resources, your boss, management, and other key stakeholders. Not only will poor performance reflect poorly on the employee, it will also reflect poorly on you and your ability to assess and coach talent.

Further, if the person can’t perform in the new role, they may end up exiting the organization by choice or being asked to leave. In either case, you’re left again with an opening on your team, and now, damage to your leadership brand within the organization.

It can negatively impact team morale.

Not all of the elements of a counteroffer will be known to others on the team. Unless the individual shares details (of a merit increase, retention bonus, additional stock grants etc.), others won’t know what they were offered to get them to stay. But if the counteroffer is a promotion, it will be immediately known to everyone on the team and within the wider organization.

When a colleague unexpectedly receives a promotion or a new role when they weren’t on track to receive it, this can start to negatively impact team morale. It can cause gossip among the team, with speculation as to how and why it happened. It can also erode respect for the individual if others don’t feel they deserved the promotion and ultimately devalue it.

“What leaders don’t realize is how the counteroffer can backfire and have a ripple effect across the team,” says Felicity Hassan, talent advisor at Core Innovation Capital and board member for Women Business Collaborative. “It can be a driver for others to start looking outside the organization, and then, you may be confronted with more resignations than you expected.” Hassan advises leaders to consider the impact of stopping one person from leaving versus focusing your energy on ensuring the rest of the team is energized by their work and aren’t flight risks.

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Remember that during the Great Resignation, talent will continue to reassess their employment opportunities. The counteroffer isn’t a one-size-fits-all solution to stopping good employees from leaving your organization. If people are ready to move on, sometimes the best decision may be just to wish them well in their next opportunity.

Copyright 2022 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.