If companies can afford a counter offer, why don't they pay that before the employee departs?

Question

I've noticed something bizarre at two workplaces. As soon as I decide to quit, a cache of bonuses and perks unlocks. This seems bizarre to me because, if I was so important to keep around, then why not make those things available while I was happy instead of waiting to the very last minute when very little can be done?

At this point, my mind is made up and throwing money my way is solidifying the decision to leave even more. I feel they could have been giving me that money throughout my tenure at the company but instead they were holding out.

I know that sounds like the lyrics of a very bad song but I'm curious to know if this is considered standard practice. If it is then there is a giant loophole at almost all corporations waiting to be exploited.

Answer 1

This seems bizarre to me because if I was so important to keep around then why not make those things available to me while I was happy to work there instead of waiting to the very last minute when very little can be done to keep me around.

Let's face facts: that companies pay you at all is because if they didn't, you'd work for someone who would (and legal reasons). So companies will pay you just enough that you'll work for them rather than their competitors. The gotcha here is of course that companies don't have a crystal clear view of what their competitors are offering, and they certainly don't have a clear understanding of what you value.

So companies make their best guess. "We think $80k a year and 3 weeks PTO is enough to keep Bob from going to EvilCorp." And they're usually right. It's not that they couldn't offer $100k, or 5 weeks PTO - but remember that the goal of the company is not just to keep talent, but to do so in the most profitable way.

Add in that the fact you're paying Bob $100k might get out to Bill (who does the same job), and suddenly Bill wants that much or will leave because you're treating people unfairly. This isn't a giant loophole as much as a fact of modern labor markets, and the reason that "negotiate every offer" is a key recommendation these days.

Answer 2

It is both usual and unusual at the same time.

I have watched many great offers of money, promotions, additional training, better shifts that are only available when trying to convince an employee not to leave. Sometimes the employee would be a great loss to the company if they were to leave, other times they are not so great but their timing would be very inconvenient for the company.

I have also witnessed employees never receive a counter offer. I am never sure if it was not the right time for the company to make a counter offer, or if they knew it was never going to work because of the reason the employee was leaving.

What I have noticed is that the less tangible offers are generally made when they are just trying to delay the employee, or they expect the employee will not press for the promised to be fulfilled. For example "we will send you to training class next year"; or "the next time there is a hole on day shift you will be the first person we consider for the slot". Next year only brings excuses.

I have also noticed that generally the employee that accepts the offer to stay, doesn't last long. If they were really ready to leave once, they will be ready to try to leave again. They may just accept the offer to get a bump in pay, but never stop looking; or maybe their perceived disloyalty to the corporation poisons the working environment.

Most managers admit the last minute offers are generally not successful over the long term, but keep doing it because it can have a short term impact and on occasions long term success.

Answer 3

I've worked at companies that make it a practice to never make a counter-offer when someone puts in their resignation.

My question would be, why didn't you ask for more money before you went looking for a new job? Maybe you didn't realize other people pay more or you didn't want to take the risk of asking for more? Good sales people start the pricing negitiatons for much higher than what they're willing to settle.

Salaries are a negotiattion and there are levels of risk for both sides. You can pay people the highest salaries in the world and they could leave for various reasons. They thought you were satisfied with the salary or you wouldn't have accepted it.

There are costs of time and money with replacing people, but they thought you were worth it. Did you make a counter-offer? You didn't seem like you were prepared for this when you resigned. Did you tell them how much you were making at the new job? You shouldn't have. You didn't want to stay, so why go down this path?

Basically, if you don't ask, you don't get.

Answer 4

There are several reasons a company will give a counter offer to an employee that has signaled their intent to leave.

The most common one I've seen is that they want the employee to stay long enough in order to finish the task at hand. This usually goes hand in hand with giving them time to find your replacement. Be aware of this if you decide to accept it.

From an employee perspective you should rarely, if ever, take the counter offer. There are several reasons. First, the only reason you turned in notice is because you received, and accepted, an offer from the other company. To now call that other company and decline will absolutely burn a bridge.

Second, there are reasons you wanted to leave. If it's purely financial then you should have asked for more money before looking. If it is other than financial, more money will only make the issues you had tolerable for a short period of time. At which point you are going to start looking again.

A third reason is that because you've already told them that you were looking your immediate boss will be much more aware of those extra long lunches, late arrivals or early departures. Even if you really were going to the "doctors office" or "got stuck in traffic" it will look bad. At some point they may just terminate you simply because they thought you were looking and wanted to end it on their terms.

As a manager, when I have an employee decide to quit I go ahead and walk them out right then (yes, I still pay them the two weeks notice). The reason is that during those two weeks the employee has mentally checked out anyway, so they won't be very productive. Meanwhile they will spend a fair amount of time talking about their new position which, unfortunately, tends to encourage at least one other to go as well. I'd rather not have that.

Answer 5

In my experience this indeed is a common practice in many (IT) organizations.

Remuneration is one of the prime reasons why employees in IT industries around the world move on to other organizations. Sure shining with technical brilliance and inventing the next big thing are some of the other reasons. What were your reasons of leaving these two jobs ?

It is a market place out there. A lot of internal HR performance benchmarks are met when recruiters are able to get a candidate with profile X to be working with salary+benefits under compensation Y. The actual 'Cost to Company' of that candidate can be Y + some percent. That some percent is usually the cost the company bears on your training/entertainment/etc. So when you resign or show intent of leaving, the company knows that the cost of recruiting another person and bringing him/her to your level would be more expensive than offering you a say 2% bump in salary. So they make their move.

In a few places I worked they used to call it R&R. Not rewards & recognition. Resign & renegotiate. Of course if you didn't know your company engages in R&R you would be resigning and moving on instead of negotiating.

Answer 6

A couple thoughts to put a different perspective out there:

Sometimes they do

There ARE companies out there who pay top performers incentives in the hopes of keeping them around. Sometimes it's just making sure that top performers get great raises, sometimes it's bonuses and payoffs specifically tied to staying at the company. Sometimes it's things like stock options or grants that vest over a certain time period.

I've worked in companies where management took an active part in figuring out who their "cannot afford to lose" individuals were and making sure they were on a plan like this.

I've also seen cases where plans like these are not common knowledge. They aren't advertised the way incentive plans might be. I've always had a quandary on that - since knowing that good benefits are out there if you rock seems like a good thing to communicate. I can only assume that some of it is that there are cases where the company doesn't exactly want to tell everyone else that they are expendable.

Pay is a competitive game

Money is the biggest thing that is an inverse tradeoff. If I give you money, that is money I don't have. Other negotiations can boil down to a win-win where we each give up stuff that we want less than the stuff we're getting, but money is a zero sum game.

That makes the process of figuring out how much to pay employees something of an art form - certainly there's a minimum that is a basic standard of living but with people who have highly marketable skills, the goal is to pay salary that is just high enough that you can recruit just enough decent talent to be able to get the work of the company done. Pay more than is necessary for that goal, and the company will spend money on an unnecessary expense.

A company can look at industry baselines (same as employees, or possibly better pay-for research) - but there's not perfect science here. A reasonable company will keep an eye on the bottom line and try to keep average salaries somewhere in the spectrum of typical pay for that pay grade, but there's always hard to calibrate differences - for example, a company near great commuter options may be able to pay less than a company out in the middle of nowhere. Or a company with a great reputation for training and skills may be able to pay less than a company known for working it's people into the ground.

An employee announcing that they are leaving (especially if the reason mentioned has anything to do with salary), is a great opportunity for a company to see if modifying this vector just a bit will help. Changing the pay incentives of a single employee is a WHOLE lot cheaper than giving everyone a similar percentage increase in the hopes of retaining the percentage of people who would quit if such an increase was not available.

In the end, pay is often NOT the reason people leave

In my experience, it actually takes some pretty egregious pay shortfalls for lack of salary to be the BIG reason people leave. Even if pay is on the lower end of what's reasonable in the location, skill set, industry - people will stick with a job that they basically like (or don't hate). The comfort of known coworkers, decent bosses, well-understood work, a known commuting route, or other decent enough patterns can be enough to keep a person working in an environment so long as they see options for future career success and some level of long term company viability.

When these things change - for example, when a company has financial hardship, or the management changes so that the culture is no longer so tolerable, then many people will leave regardless of the amount of money available. In these circumstances, increasing salaries across the board by 10% is likely NOT going to retain enough people to make the extra expenditure worth the cost.

Answer 7

why don't they pay that before the employee departs?

When determining salaries, the trick is to pay enough, but not too much. I know that sounds trite, but from an employer's point of view it's quite a challenge.

HR is typically charged with surveying the market and determining salary ranges. Often, companies want to pay "market wages", so that they can attract candidates, and not lose them due to being far behind other employers. Sometimes, companies decide to try to pay more than most other employers, with the idea of attracting the best employees. A few times, companies decide to pay less than other employers, with the idea of attracting cheaper talent.

It's usually not a whimsical decision, and usually one made at the top level of a company.

I've noticed something bizarre at two workplaces. As soon as I decide to quit, a cache of bonuses and perks unlocks.

Terrific. You are more fortunate than most. At some point in your career you will decide to quit and bonuses and perks will still not flow your way.

I seldom try to keep people around by offering more money. In my experience, people almost never leave jobs solely for money (unless my company is one of those dedicated to paying less than most others). Instead, they leave for a variety of factors - with pay being in the list but not at the top. See: this article Thus, paying more might keep the worker around for a little while, but will often not matter for long - the other reasons for leaving are still there.

You yourself indicate that "throwing money my way is solidifying the decision to leave even more". So clearly "more money" isn't really the full issue here.