Counter-Offers: Why They Don’t Deliver Much Bang For Your Buck

We had a brief but lively conversation, my Compensation Cafe colleagues and I, about counter-offers during our Advice on Pay from the Compensation Cafe session on last week’s Proactive Employer podcast.

Generally speaking, the group was not “pro” counter-offers. Reactive dollars never deliver the same ROI or the same satisfaction that proactive dollars do, and a pattern of counter-offers and adjustments can ultimately land you the reputation of having a “pay the squeaky wheel” compensation strategy. Not a winning play.

Nonetheless, it is good to have some real data on the topic of counter-offers and a just-released report Retention of Key Talent and the Role of Rewards — released by WorldatWork, Dow Scott of Loyola University and Hay Group — provides just that (and addresses a number of other retention topics as well).

A lack of formal policy

The new study features the responses of 526 WorldatWork members. Even better, the same authors conducted a similar study on counter-offers back in 2004 (284 respondents, link to WorldatWork Journal article may be limited to premium members), enabling us to get some small sense of historical context and trends.

What do these surveys tell us?

  • Counter-offer approaches tend to be ad hoc and situational, rather than driven by formal policy. Few organizations have a formal written policy in place.
  • Counter-offers tend to go to employees who are both in key positions and outstanding performers. It is, however, also interesting to note the apparent spike in manager-driven counter-offer requests (jumping from 5 percent in 2005 to 36 percent in the current survey).
  • HR is typically (but not always) involved in counter-offers, but rarely as the primary decision maker. Not much has changed in this data over the past seven years

The problems with counter-offers

How well do counter-offers work?  These questions were less consistent from the early to the later survey, and responses appear to suggest a mixed bag.

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Problems?  Respondents in the 2012 study say its about an even bet.

  • For employees who accept a counter-offer, does their relationship with the employer appear to be damaged by the experience? Most respondents don’t believe it has been; few, however, see the experience as having improved the relationship.
  • Bottom-line, are counter-offers effective? Here’s where we see the pessimism break through; the great majority (82 percent) say not — or only marginally so. But what makes a counter-offer effective? Perspectives among respondents are varied, with prevalent measures including employee acceptance, not disrupting business operations and retention of the employee for at least three years following the counter-offer.

The 2004 article, for those in need, offers some strategies for overcoming — or at least staving off — some of the negative consequences of counter-offers.

What’s your position on counter-offers?

This was originally published on Ann Bares’ Compensation Force blog.

Ann Bares is the Managing Partner of Altura Consulting Group. She has over 20 years of experience consulting in compensation and performance management and has worked with a variety of organizations in auditing, designing and implementing executive compensation plans, base salary structures, variable and incentive compensation programs, sales compensation programs, and performance management systems.

Her clients have included public and privately held businesses, both for-profit and not-for-profit organizations, early stage entrepreneurial organizations and larger established companies. Ann also teaches at the University of Minnesota and Concordia University.

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