Matching the salary and perks a competitor is offering may look like a good way to keep stars from leaving, but it can be risky.FORTUNE -- Dear Annie: I'm curious to hear what you and your readers think about using counteroffers to retain talented employees. Last week, I was in a meeting of department heads (six of us, including me), and a couple of people mentioned that key team members have gotten great job offers from our competitors. On top of bigger salaries, these other companies are throwing in things like free gym memberships, not to mention substantially more vacation time than we currently offer.
So, naturally, the conversation turned to whether we could, or would, match these offers, and at least one person seemed inclined to do so. But is that really smart? I have my doubts, partly because I accepted a counteroffer for more money, some years ago at a different company, and it sort of backfired on me, so I ended up leaving anyway. Your opinion, please? --Holding Back
Dear H.B.: With hiring picking up, it follows that decisions about making, and accepting, counteroffers are on the rise too. A survey last month by staffing firm The Creative Group, for instance, found that about 20% of marketing and advertising executives are agreeing to match more outside offers than last year, mainly to avoid losing employees with hard-to-find skills, while just 5% said counteroffers have declined.
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The biggest drawback to counteroffers is that they're often a temporary solution to a long-term problem. "Many companies are willing to pull out all the stops to retain their best people," observes Creative Group executive director Diane Domeyer. "And the employee who accepts a counteroffer may feel valued in the short term. The trouble is, the issues, beyond money, that are prompting the person to think about leaving usually crop up again later."
She recommends considering these four questions before matching a competitor's offer:
1. Will a counteroffer address the real problem?Sometimes higher pay is the only reason a star employee wants to change jobs, but more often it isn't. Boredom, lack of chemistry with a boss, no clear career path, or some other issue (or combination of issues) won't be resolved by throwing money at them.
2. Is it a knee-jerk reaction? Domeyer notes that, faced with losing an essential team member, many managers panic. She recommends slowing down, taking a deep breath, and asking yourself, "Are you asking this employee to stay because of the value he or she brings to the role, or only so that your team won't be left in the lurch?"
3. Will it set a precedent you can't afford? Word gets around. "Make a counteroffer today, and you can be sure other restless employees will expect similar treatment in the future," Domeyer says. "If one employee gets a significant raise purely because of another job offer, it could upset your whole pay scale."
4. What impact will it have on the team? "What you gain by trying to appease one person can cause resentment and low morale among the rest of your staff," Domeyer says. That's especially true of conspicuous perks like extra vacation time. People who work together may not know each other's salaries, but they do notice when someone takes, say, four weeks off instead of two.
In this as in so much else, the best cure is prevention. "The time to talk with your most valued employees about their future with you is not when they've already decided to quit," Domeyer says. "Companies with the highest retention rates now are the ones where managers are having frequent conversations with the people they don't want to lose."
It helps to have succession plans in place too, she adds: "People do change jobs, so what if your best team member does quit? You need to be ready and train someone who can step into that person's role."
John Challenger, CEO of Chicago career-development firm Challenger, Gray & Christmas, agrees: "Your best people are the ones who are most likely to get other offers. So managers have to take the time to plan for that."
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Challenger also notes, incidentally, that accepting a counteroffer carries its own risks. "If you take an offer that matches the one you got from another company, and you agree to stay, higher-ups still know you were planning to quit," he points out. "You can't unring that bell."
You don't say how the deal you accepted at your previous employer "sort of backfired," but Challenger has seen counteroffers put an end to people's advancement in companies.
"It's kind of like telling your spouse you had an affair," he says. "On some level, trust has been broken. So when it comes to promotions, for example, there's now a seed of doubt about whether you're really committed for the long run." To anyone weighing a counteroffer, Challenger adds, "you have to consider whether that possibility is worth a bigger paycheck" -- or whether it makes more sense to simply take the other offer and move on.
Talkback: Have you ever made a counteroffer, or accepted one? How did that decision turn out? Leave a comment below.
The hazards of making (or accepting) counteroffers - Ask Annie -Fortune Management
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