I'm happy working for my current employer and I'm paid relatively well. Recently I decided to interview at another company, the process went very well and knowing that I'm not actively looking for jobs, they offered me a pretty handsome salary and a bigger role to persuade me to join them. There are circumstances that will make switching jobs hard for me at the moment, so generally I plan to reject the offer and stay at my current employer. However, discussing the offer with my manager can potentially gain me a bigger pay and a bigger role at my current company. What are the ways this can backfire, and should I do this in the first place? If yes - then how to approach this discussion better?
Personally, as a manager, I dislike it when people do what you propose. It sounds a bit like blackmailing.
It also hurts the trust I built toward that person. Why was someone going to an interview in the first place if he really has no intention to change jobs? To find out his or her market value? Or is there somewhere a bit of unhappiness? What happens if I do not respond accordingly?
I might start looking myself for a replacement or addition, and even if not, I will probably feel a bit more unease assigning you important work.
It might be much healthier to just talk about the work you did and the value you add to the company, and whether that would account for a raise. Tell them that you would like to take on a bigger role, even more responsibility, and how happy you are with the company.
Now, if the company or your boss is reluctant and just has no ear for you, you might start talking about the offer. But be prepared that you might get the opportunity to accept the other job because of this. Because if your boss does not follow up on your question, it might just be that for any reason - not even personal - they are looking into downsizing or letting some people/you go. Just give your boss enough time to come up with an answer. He will have to do some calculations and ask some other people up the line.
Bottom-line is : only do it if you are ready to leave.
They may answer yes, give you a raise. However, this action will be likely perceived as a trick of yours, or blackmailing. You may still want to do it, but just understand that you may destroy all trust of you managers in you, and as Ralph Rickenbach pointed out, they may (that's what I'd do) start looking for a replacement, since they will think you can resign anytime if offered more money.
They may also tell you that they can't pay you that much. In that case, you need to accept the other offer. Otherwise, you'll look like a fool and you will have succeeded in sabotaging your career plans.
Of course you should. Your market values is apparently higher than your current salary, and you should capitalize on this.
I've been solicited a few times, and I've used it to go to my boss to get a substantial wage increase. What you need to figure out is, if you want to use this as a wage bump.
Book a meeting with your boss, tell him you've been made an offer to join another company, with X pay and Y responsibilities. Try to be descriptive and neutral. Tell him that you're happy here, but you're going to need an increase to put your wage close to this.
Don't make it personal, and be ready to take the position if nothing comes of it.