What is a counteroffer?

A counteroffer is a response that an employer gives to a candidate or current employee who has a job offer from another firm. If you give a counteroffer to a candidate, the goal is to convince them to work for your company instead of accepting the other job. When you make a counteroffer to a current employee, the goal is to convince them to continue working for you instead of taking a job elsewhere.

Here’s how a counteroffer works in each scenario:

• Candidate: Syd Jones is the top candidate for the Director of Marketing position at your company. When you call to make an offer, he tells you that A&L Global already offered him a job. To convince Mr. Jones to take your offer, you increase the starting salary by $5,000 and promise to give him three additional personal days.
• Current employee: Vivian Wilson has worked for your company for five years. She always receives excellent performance reviews and has valuable institutional knowledge. Ms. Wilson comes to you and says that she received an offer from Creighton Logistics for $10,000 more than she currently makes. The offer also comes with a senior title. To avoid losing Ms. Wilson, you counteroffer a promotion to a management position, increasing her salary by $12,000.

Advantages of giving a job counteroffer

Giving counteroffers has several advantages for employers. One of the most significant is that you have an opportunity to retain valued employees or prevent high-quality candidates from going to other firms. If a candidate accepts your counteroffer, you can stop conducting interviews and focus on preparing them for their first day of work. When a current employee accepts a counteroffer, you don’t have to worry about advertising their job or spending weeks looking for the right replacement.

Although a counteroffer often involves spending more money, it may help you save money in the long run. For example, if Ms. Wilson accepts your offer of a $12,000 salary increase, you won’t have to advertise her job, conduct interviews, administer pre-employment assessments, do reference checks or train a new person. There’s a good chance that those costs may add up to much more than the $12,000 salary increase, making counteroffers an important tool for staying within your hiring and training budget.

Making a job counteroffer also shows candidates and current employees that you value their knowledge, skills and abilities. After all, you wouldn’t be willing to offer more money, better benefits or additional perks if you didn’t want that person on your team. Therefore, making counteroffers may also help build goodwill among candidates and employees, strengthening your reputation as an employer.

Related: 13 Effective Employee Retention Strategies

Disadvantages of making a counteroffer

Although counteroffers have some advantages, they can also backfire. For example, if you offer to match another company’s starting salary, the employee may feel offended that you’re not willing to offer them more. Alternatively, if you make a job counteroffer to retain a valued employee, they may wonder why you weren’t willing to give them a raise sooner.

Making counteroffers is also expensive, especially if you’re trying to retain senior employees who are already at the top end of their salary range. A senior employee may not be willing to stay if you counter offer an additional $2,500 or $5,000, but your budget may prohibit you from offering more.

Finally, not every candidate or employee wants more money to stay with your firm. They may want flexible schedules, additional vacation time or more responsibilities. It’s great if you can meet them halfway, but not every firm has the resources to give everyone exactly what they want.

Related: Conducting Stay Interviews to Improve Employee Retention

Alternatives to counter offers

In some cases, making a counteroffer is the best way to retain high-quality candidates and employees. If you decide that a counteroffer isn’t in the company’s best interests, there are a few alternatives to consider.

Retention bonuses

A retention bonus is a supplemental payment designed to motivate current employees to stay with your company. Giving retention bonuses shows employees that you value them, which may prevent them from applying to other jobs or accepting offers from other companies.

Firms also use this type of bonus to ensure stability during mergers, economic downturns and other uncertain times. Offering a bonus when things are uncertain may be enough to prevent key employees from leaving.

Although retention bonuses have some advantages, they’re not right for every situation. One of the biggest disadvantages is that retention bonuses don’t address the real reasons why employees are leaving your company or high-quality candidates are choosing to work elsewhere. They’re a temporary measure, not a long-term solution to your retention problems.

Unless you offer them to everyone, retention bonuses may cause some resentment among employees. If you decide to offer this type of bonus, be prepared to field questions about why some people received bonuses and others didn’t.

Additional perks and incentives

If you provide just the right balance of compensation and benefits, candidates and employees may have fewer reasons to consider employment elsewhere. Many firms don’t have the budget to increase salaries by 15%, but you can offer some inexpensive perks and benefits to make your company more attractive to current and potential employees.

To stay within your budget, try offering perks that cost very little, such as flexible work schedules or the option of working from home at least once per week. If candidates hear that you offer these perks, they may be willing to pass up job offers from other companies, even if those offers pay slightly more.

For current employees, flexible scheduling eliminates some of the stress associated with juggling work and family responsibilities. Employees may be happy enough with the new arrangement that they wouldn’t even think of entertaining other offers.

Read more:Retention Bonuses: Why You Should Offer Them

Frequently asked questions about counteroffers

What is a good counteroffer?

There’s no hard-and-fast rule for making counter offers, but you do need to keep your hiring budget in mind. It’s also helpful to find out what other firms in your industry are paying. Above all, make sure each counteroffer is reasonable. A high-quality candidate isn’t likely to give up another job opportunity for a 1% increase in the starting salary nor is an employee going to stay with your firm for 1% when they can get 10% more at another company.

Do employees expect counteroffers?

It depends on their work experience and skill level. If your top-performing salesperson receives an offer from another company, they may expect you to make a job offer to prevent them from taking their sales skills elsewhere. An entry-level employee without much work experience may not expect a counteroffer.