With 1 in 9 jobs vacant, open vacancies outstripping unemployment and employee turnover at exceptional levels, many managers and HR teams will be utilising counter-offers to retain valuable talent that is considering an external move. Counteroffers will typically mean pay increases, one-time bonuses or promotions. Given the challenges of hiring external talent and the inevitable lag between a leaver and a new joiner, are counteroffers a valuable tool to retain talent or a potentially costly gamble?
This article from HBR explores the potential pitfalls – the risk that a counteroffer will fail to address the underlying reason for an employee resigning, that the line manager may appear to be undermined or that team morale may be impacted if the team learns that the threat of resignation can be used to negotiate better terms. Most insightful is the assertion that ‘50% of candidates who accept a counteroffer are back in the marketplace looking again in two months’. So as well as the potential pitfalls of counteroffering it seems that it’s a 50/50 bet whether the retained employee will remain.
We have all heard the adage that employees don’t leave companies they leave managers. If this is the case should we assume that the manager has failed at the point that an employee threatens to resign? Presumably had the manager better developed and valued the employee then they wouldn’t be considering leaving in the first case? I think there may be some truth in that statement although we should recognise that managers can’t be wholly accountable for developing and retaining employees, companies and HR specialists certainly have a role to play.
As I wrote in a previous article (we need a new approach to internal hiring), internal hiring methodologies are woefully inadequate if we wish to proactively retain, develop and progress existing talent. In that article I shared research that showed that only 40% of those leaving jobs claimed that it was easy to find internal opportunities and only 17% felt that their organization encouraged them to move internally. So should we blame employees when they are tempted by external opportunities given that they’re far more likely to be approached for an external opportunity than an internal one? In a job market as hot as it is today we shouldn’t be in the least bit surprised.
In the current market and with inflation and the cost of living soaring it’s no wonder workers are tempted by higher salaries, particularly given that an external job offer is likely to offer a salary increase significantly higher than an annual pay increase for a retained employee. So should we utilise counter-offers as a retention tool? I would argue that we should do so sparingly and with due consideration to the risks highlighted by the HBR article. And understanding that half of all employees that accept counteroffers subsequently leave, I would strongly suggest that Hiring Managers, when utilising counter-offers, begin searching proactively for a long-term replacement as soon as possible.
In the meantime let’s focus our efforts on how we better value, develop and progress internal talent to negate the need to counteroffer.
“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.”
Employee turnover continues to run at exceptional levels and the job market is as hot as I have ever known it. We will all be feeling the impact of the current jobs market, probably the most exceptional market I’ve ever experienced. To put it in to perspective, there are c.17m open positions in the US today meaning almost one in 9 jobs are vacant and there are >5m more vacancies than unemployed workers.
Reducing employee turnover should be a strategic focus for the boardroom, not just the HR leadership team. With employee turnover comes significant wage inflation (because external hires will nearly always come at a premium unless companies are doing a good job of hiring for potential over job-readiness). With employee turnover there will nearly always be a lag before a new person is in role, a lag whilst productivity ramps up and a cost to hire a replacement.
So, naturally, we need to do a far better job of developing and retaining our existing talent. And encouraging a greater level of internal mobility is key to that aim.
The paper below in HBR, based on research by Gartner, is enlightening and also somewhat depressing. Of those employees that took a role externally, only a third looked for new opportunities first. Only 40% claimed that it was easy to find internal opportunities and only 17% felt that their organization encouraged them to move internally. With employee turnover causing such operational and commercial damage these statistics are damning for HR teams.
Why is internal hiring so poor? I would argue that it’s partly for cultural reasons such as managers hoarding their existing valuable talent. But it’s also because HR teams have failed to challenge the status quo.
We need a new approach to internal hiring. We need new technologies that give organizations a holistic view of their talent and skills and technologies that proactively help to match internal talent to new internal opportunities. We need to change our corporate cultures so that managers are encouraged or rewarded to develop and progress their existing talent. And we need to allow talent acquisition teams to proactively approach internal talent for roles in the same way that we would do for external talent.
Unfortunately, most employees don’t think of their own organizations when they’re looking for a new opportunity. A Gartner survey of 3,000 candidates globally, conducted in May and June 2021, found only 33% of employees who searched for a new opportunity in the past 12 months searched internally first.
I’ve written extensively about scarce skills within the Pharmaceutical and Life Sciences sector and digital skills are amongst the most scarce and in demand. For employers within the sector they are not just competing with their traditional competitors but with every other sector including the technology sector itself. If you have niche digital skills would you be more attracted to a job with Apple, Meta or Amazon or within the Pharmaceutical sector? All sectors can compete effectively for scarce digital skills but it is far from easy and there is no silver bullet.
Candidate Centricity – the need to tailor hiring processes and recruitment brand (think candidate value proposition) for specific candidate segments
Market Insight – no longer an advantage but a necessity, institutionalized market insight will empower recruiters and sourcers to understand where talent resides and how best to engage and convert that talent in to new hires
Specialist Sourcing Capabilities – recruiters today may be highly skilled at searching for passive talent, they may be brilliant advisers to your hiring managers, and they may be excellent interviewers, but they are unlikely to be all three. Specialist sourcers empowered with the latest SaaS tools will deliver huge value and a competitive advantage
The article below from McKinsey details ten realities companies need to face and what they can do to address them in order to compete for scarce digital skills. More recognition that there is no silver bullet and progressive companies will need to completely rethink their HR strategies to be successful.
Large incumbents can compete successfully for tech talent—but only if they’re ready to completely rethink their entire HR approach. Tech talent think and act differently.
