I've seen more counteroffers than I can count over the years. Unfortunately, the end result is more predictable, and expensive, than you may realise.

With salary reviews currently underway for many organisations, it is timely to discuss the realities of counteroffers in order to avoid them.

Counteroffers are more likely to have negative outcomes

A valued team member walks into their manager’s office with a resignation letter in hand. Most people’s first instinct is to try to retain them, which leads to one of management’s oldest mistakes, the counteroffer.

Whether intentional or not, the counteroffer may help employees negotiate higher salaries in their new role. I see this happen regularly.

The alternative is the employee accepts a pay increase, perhaps a new title and the promises made around future opportunities, development plans or expanded responsibilities. On the surface, everyone appears satisfied. In reality, both sides are often left questioning the relationship. More often than not, the resignation simply gets delayed.

Within 12 months, the majority are gone.

Surveys conducted by recruiters and the Australian HR Institute all confirm my experiences with clients and candidates. Organisations consistently underestimate post counteroffer attrition, with results ranging from 50 – 85% leaving.

Why? The reasons an employee started looking rarely disappear with more money. An organisation’s culture doesn't change overnight, personality clashes cannot be magically resolved, and a company’s vision isn’t suddenly inspiring if it wasn’t already.

How do leaders view a counteroffer?

The uncomfortable truth is that a counteroffer can simply be a strategy to buy time, particularly if the person’s skills and experience are harder to replace. It allows time to transfer knowledge, redistribute responsibilities, complete a key project or quietly identify potential replacements.

Safe Work Australia research indicates workplace disengagement costs Australian businesses over $54 billion annually. Counteroffers don't fix disengagement; they minimise it temporarily. This is where alignment in expectations fracture. A leader has often had to fight for the increase, even making promises that put their reputation on the line, so they want to see a lift in performance.

Why are counteroffers a trap for employees?

Firstly, it is worth noting that counteroffers are not always a trap. But they can be. Accepting a counteroffer can change the employee’s relationship with the employer.

This may seem unfair when high performers are on the lower end of the salary scale and/or they’re approached rather than actively applying for jobs. Yet the need for change often persists, as does the feeling of being undervalued in the first place.

Leadership also knows you're a flight risk, which may have subtle consequences if an effort isn’t made to rebuild trust. This is possible but it takes time, and in the meantime, the additional opportunities afforded to high value employees may not materialise.

In some cases, consequences can be overt and breach the Fair Work Act. The Fair Work Commission handles thousands of disputes annually where employees felt marginalised after returning on a counteroffer.

Counteroffer decision making

The best way to decide whether to make or accept a counteroffer is to get answers to the following questions:

1.     If the money was removed from the equation, is this still the right fit?

2.     What specifically appealed about the other opportunity?

3.     Where do you want to be in your career?

If the answer is no to the first question, then no salary increase will fix what’s fundamentally broken. While answers to question two and three are more nuanced, they will help both parties understand whether expectations, career goals and workplace realities are still aligned. If not, it’s probably time for both sides to move on.

The best leaders I know don't lead with counteroffers to retain people. They prioritise open, honest conversations, long before someone starts looking elsewhere. Clear discussions around career progression, remuneration, expectations, workload and engagement are far more effective than reacting once a resignation letter appears. Because in most cases, the counteroffer is simply the painkiller, rarely the cure.

To discuss permanent recruitment requirements, contact Acclaimed today for a confidential discussion.