Why would my current employer give me a lower counter offer?

Question

I had an offer from a different employer which was really good and I'm planning on taking it. However, when I told my employer my plans to leave and shared the offer I had received, they said they wanted me to stay and they'll present me a counter offer.

One week forward and my current employer presents me the offer, it's near offer x from the other company but it's not as good. Now I'm a bit agitated and I've decided on leaving. Out of interest I'm also trying to figure why they even bothered countering if it's not at least the same offer.

The company certainly has the funds to match it as it's one of the most profitable and largest firms where I'm from between 3-8k employees and 1B+ profit a year. Also their counter was near why not match it if they really wanted me to stay?

Answer 1

Three possibilities spring immediately to mind :

1. They only have your word for what your new offer is, and are guessing that you are exaggerating it to try and get a higher counter offer. So they offer lower than you said hoping that they'll happen to beat what the offer really is.

2. Generally employees don't change jobs for the same pay or only a small raise. They might be hoping that their counter offer is close enough that you won't think the difference is worth the hassle of changing jobs. (One of the flaws in that thinking is that by the time you've got a new offer, you've already dealt with much of the hassle and mental adjustment that discourages people from leaving).

3. They think that the non salary upsides of working there are enough to compensate for the pay differential. Although I think most companies tend to overestimate their offering in that regard.

Bonus 4th possibility that occurred to me :

4. They've made their estimate of what it would cost to replace you, in terms of salary, recruitment costs etc. and their offer is based on that value without regard to what your new offer is. They make the offer at their break even point, and either you take it or you don't. If their offer isn't good enough for you then it would take too much to keep you (in their evaluation).

Answer 2

It doesn’t matter

There could be a whole host of reasons why they didn’t match or exceed your offer. None of them are going to change that they did not match your offer. You shouldn’t waste your time and energy thinking about the reasons because at the end of the day those reasons are not your problem.

Maybe their budget for salaries for your position is low even though they have $1B+ profit. Their cost accounting is not your problem. If you heard an explanation about “Well, we only pay people $XYZ at within your salary band because blah blah blah blah blah” would it change your mind? No, because your problem is that your pay is less than what you can get from the market.

Answer 3

Don't be agitated, please! You found yourself playing a particularly stressful game called offer/counteroffer without intending to.

Lots of people play this game very poorly. It sounds like your company's executives are among the poorer players. That's on them, not you. Trying to figure out their reasoning is not a good use of your time and energy.

You can decline the counteroffer by simply saying, "thanks for the generous offer, but I already made up my mind to take the new job. Thanks again for the opportunity to work with you." Then, move on.

Beware the counteroffer game. They can play it badly without damaging their reputations, but you, as an employee, cannot.

Answer 4

The offers are risk adjusted

Let's make a simplifying assumption and posit that both jobs are roughly equal, on aggregate, in all aspects. That being true, in a perfect world, their offers should be the same.

But, you don't have perfect information on both - only on your current job. That means your offer P for the new job incorporates a degree of risk that the new job in fact turns out to be worse than your current one, plus the transaction costs of switching.

Your employer knows all this. Their bet is that you'll accept their counter offer Q, which is less than P, but has almost zero risk because of very good information about the job, and zero transaction costs. They are hoping that P - Q, i.e. your loss by taking the counter offer, is less than what you'd hypothetically pay to avoid the risk plus the transaction costs.

How right they are is for you to decide, or at least gamble upon. But consider that they could be. It's no insult to you to offer less - rather, they're just entirely rationally pricing in the risk and hassle of you changing jobs. And you may indeed be more likely to be better off by staying.

Answer 5

Typically there are a few aspects which limit a possible (unexpected) raise:

A) there must be department budget for it (which might be especially challenging if the fiscal year is already planned)

B) the new salary must fit within the internal regulation brackets for the position.

C) the new salary must be comparable with other existing colleagues. Otherwise it might create unhappiness with the fairness or an Avalanche of negotiations.

D) you must be worth the raise for your existing employer (unlike the new employer the old one thinks they better know the productivity to be expected from you)

In my experience it's not uncommon that counter offers are lower, especially in IT where you always have another company offering more. You cannot keep up with that indefinitely. After all the employer has (for the sake of the rest of the company employees) stay competitive.

Answer 6

I was in this situation once, though it was my own doing. I was working at a job I really loved and my previous employer offered me a 50% raise to come back.

I told my boss and she said "what would it take to make you stay" and I named a number halfway in between. And sure enough, that was the raise I got. I stayed.

And I think it was the right choice.

Answer 7

Surprisingly, the bigger a company is, the stricter are rules and policies in general. So, despite $1B+ yearly profit, each department can be obliged to stay within very narrow budgets, staff grades, salary levels etc. So, your current management could be in position offering the best they can give you, and any bigger digit cannot be authorized by their level of responsibility.

For a company, the reason behind is very simple: given you have 10 employees, giving a raise of $1K to one of them is just a motivation for another one or two to ask for a raise. Having 1000 employees, you should consider each rise as a pack of raises actually. So, your rise can trigger 100-200 another ask-to-raise situations, which lead the company to have extra $100K-$200K of non-planned expenses, monthly.

Answer 8

Companies aren't interested in talent. They are interested in profit. Talent is just a tool towards attaining profit. While it is typical for companies to tell their employees that they are their greatest assets and that they have the greatest around, they have no reason to want the greatest.

They want the necessary talent for the price. They want to get the minimum amount of tools at the minimum price to accomplish the things that drive their revenue and profit.

Also, continuing from Yury Schkatula's answer, the ripple effect can not only cause underpaid workers to get paid better, but can cause friction with workers already paid what they're worth (to the company, at least). This friction causes problems for management, productivity for the worker and possibly worker retention.

You may be extremely valuable compared to anyone else, but the total cost of matching that value might just be too expensive in their view.

Answer 9

By telling your current employer about your new offer, you insinuate to them that you're actually interested in staying, but want a raise to do so.

If you really wanted the new job, and liked their offer, then you should have just kept your mouth shut about it, given your two weeks notice, and gotten on with life. Revealing your hand about a new job is often used by people that want a raise or to see how valued they are.

But, what it also does is red-flag you as a potential "leaver". If you stayed at your current company after accepting their counter offer, they're going to post an ad to find your replacement. Even if the counter offer they gave you was really amazing... they wouldn't be planning on paying you that for long. To them, you're just a cost-benefit equation. Now that they'd have to pay more for you, they'd decide to go find someone else they could pay less to that will do the same work.

So, offers and counter-offers don't matter any more... you're taking that new job whether you like it or not. Because, if you stay at your old job, you'll get fired 6 mo's down the road anyways after they secretly hire your replacement and train them to do your job.

Next time, don't tell your current employer you have a new job offer. Just put in your two weeks notice and leave. If they ABSOLUTELY want you.. they can spend a few months without you to realize how badly they need you.. then they'll contact you to make a REAL counter-offer and hire you back. And, if you come back on THOSE terms, they're more likely to keep you around.

It's all a big game. You have to know how to play it.

But, you sort of screwed yourself on this one. Take the new job and move on with life. If your old employer desperately wants you, they'll get in touch. But, don't stay at your old job. They'll just red-flag you as a "leaver".

Answer 10

Potentially one of the more obvious answers is that your current employer has simply made a mistake or misunderstood the offer that you told them you’ve been offered.

An important thing to consider with all offers is that, in most jobs, there are usually multiple financial and non-financial benefits in addition to your base salary.

When equating two job offers, it’s important to consider the whole package on offer and also how this fits in with your lifestyle - one person’s perfect offer is another’s nightmare. For example, for some more holiday is worth more than more money.

Another alternative is that they feel this a maximum for them based on targets or budgets. I appreciate you mentioned it wasn’t as high as your other offer but I presume it is an increase on what you are currently on? You mentioned that it’s a large company that you work for and, in addition to targets, they may feel that they have enough on offer and enough candidates to replace you (rightly or wrongly - perception is key here, rather than reality).

On a wider point, I would suggest evaluating the original reasons that you wanted to leave in the first place. Even if your current employer made you a better financial offer, this rarely is satisfactory outside of the short term if the original reason you wanted to leave remains unresolved.

Answer 11

First of all NEVER ever take a counter offer! Risk is they keep you til they find a replacement then dump you on the street.

In this case seems like your manager wanted to keep you but HR has some silly rule they never bend and you maxed out your category. Not a good position to be in no matter what even if they don't play to dump you soon as they find a replacement.

I worked with a guy who left for a promotion/raise. Ignored any counteroffers. A year later he came back with yet another promotion and raise. If he had taken any counteroffer he would still be behind.

If the company really appreciates you you can apply to a better opening next year or stay at the new place and enjoy your raise and new experience.