Imagine your employee has just been offered a much fatter pay packet to work for someone else. Is it worth offering them more money to stop them from resigning?

The employment market is tough right now. In an effort to secure good talent, more and more recruiters and employers are becoming proactive. They’re head-hunting candidates and they are offering more money. And in some industries, like IT, the extra money on offer is significant.

Why Do Employees Leave?

Usually, employees are not out in the market actively looking for a new role. Increasingly, they are getting a call from a recruiter, or a message on LinkedIn, saying ‘Hey, I have this great opportunity and I think you’d be a good candidate – would you like to come along for an interview?’

And so the employee goes to the interview and is offered the job, along with a pay package that’s $20,000 or $30,000 more than what they’re currently receiving. 

So the existing employer is left wondering whether they should match the pay package to try to retain the employee jumping ship. The problem is, very often, the issue is far more complex than a simple matter of money. 

Very often, the issue is far more complex than a simple matter of money. 

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Missing the Motivation

It’s extremely important to understand the motivation points for an employee who’s thinking of leaving. Ask the question: is money their main motivator? In other words, if you match the extra $20,000 or $30,000, is it going to make a difference in their decision-making? 

Perhaps your employee was approached by a recruiter out of the blue, and though they are glad to be offered the extra money, they are very happy working in your organisation in every other way. If this is the case, matching the salary offer is probably worthwhile to keep the employee. However, they may start thinking ‘why didn’t you pay me this before the other offer? It could actually cause bad feelings and disgruntlement. 

And what if they aren’t happy at your organisation? If you match the salary, they’re not necessarily going to take your offer. I’ve seen this happen – someone puts in their resignation and the current employer immediately makes a counter-offer to increase the employee’s salary. But the employee says, ‘Actually, the other job is a much better match for my career goals, and that’s really why I’m taking it.’

But then the employee tells their colleagues about the counter-offer. So now the whole team feels that there is inequity in the organisation’s pay policies. They’re thinking ‘why did they offer that person more money, but not me?’ And a feeling of inequity leads inevitably to reduced engagement from your team members.

Redundant Retention Bonuses

Another thing I’m seeing at the moment is employers implementing retention bonuses. They want to be proactive in keeping their star performers, rather than reacting when their employees get a call from a recruiter. So they tell employees if you stay for 12 months, or 24 months, you’ll get a financial bonus. 

But if an employee is not motivated by money, that retention bonus is not going to make any difference to them. If the right job comes along, they’re going to go anyway. On the flip side, if they’re happy in your organisation, and they’re not interested in leaving, you’ve just paid them a lot of money for no reason. And again if you apply these bonuses selectively, you risk creating a perception of inequity. Why is one person so important to your business that they get a retention bonus, while someone else does not?

Salaries Set at the Wrong Level

If your team member is being offered a lot more money for an equivalent job in another organisation – not a promotion, but a similar job in a similar-sized organisation – your salaries may not be set high enough

It’s well documented that in the Australian employment market, salaries have been stagnating for a long time. However, pockets of the market are seeing change, particularly in the IT space. Low immigration rates, linked to Covid-19, are creating a lack of supply in Australia in certain roles, which is driving prices up

If your employees are finding higher salaries elsewhere, it’s important to consider if you have a problem with your salary levels. As we saw in the last post, Paying Fair – Do you have a Transparent Pay Policy? it’s a good idea to ensure your pay policy is transparent.

Lasting Impacts

The next things to consider are the long-term impacts of implementing reactive strategies in your business. For a start, there are the financial impacts, which can be quite considerable if you are thinking about giving an employee an extra $30,000 per year. 

Also don’t forget about the long-term impacts on equity, and the perceptions of equity, in your workplace. If you give one employee an extra $30,000 per year, you may also need to give the whole team a pay increase, or risk disengagement that could lead to further resignations.

The Golden Handcuffs

The Golden Handcuffs appear when an employee doesn’t actually want to work with your business, but they know they won’t be paid at the same level anywhere else. Perhaps they don’t like the organisation anymore, or they don’t like the culture, or they’re sick of the job. The problem is, they’re being remunerated so generously that they can’t leave. 

There is nothing worse than an employee who feels stuck because that person will become increasingly disgruntled over time. It’s not good for them, and it’s certainly not good for you.

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Why Do Employees Stay?

So how do you encourage your star performers to stay with your organisation? The insider secret is that people aren’t just motivated by money. Let’s take a look at the data. 

Gartner Research

Research by Gartner in September 2021 showed that in the US, and in the UK, compensation is the number one reason why people stay in their jobs. However, in Australia, the story is completely different. If you look at the top five reasons why Australians stay, compensation comes in at a lowly number five:

  1. Work-life balance 
  2. Location of the workplace
  3. Level of respect in which the organisation is held
  4. Stability of the job
  5. Compensation

Amplify HR Research

We thought we’d also test this out with a poll on LinkedIn. We asked ‘what will keep you longer in your job?’ And the results were similar to the Gartner research:

  • 45% flexible work 
  • 29% career development
  • 26% higher salary and bonuses.

Beyond Money Motivation

So the question to ask is, what is motivating your employees? Is it money or something else? And what are you offering that’s matching that?

If I have a great employee it’s in my interest to figure out what’s important to them about their job. If like the majority of Australians, their priority is work-life balance, I’ll be more likely to retain them by offering flexibility than an extra $20,000. Or if it’s career development they’re looking for, it’s in my interest to offer them opportunities so they don’t feel like they’re stagnating. The trick is to offer the right balance of benefits to make the role attractive to them.

Crafting a Counter-Offer

The best strategy when developing a counteroffer is to look at a package of benefits and to express them in a really explicit way. For example, spell out the great things about working for your organisation, which may include career development opportunities, the ability to work school hours, or the chance to develop new products or services. 

Any of these things may be more exciting and motivational to your employee than simply adding dollars to their pay packet. What’s more, a carefully considered package will make it clear to your employee that you have listened to and understood their personal needs and motivations. This has the potential to motivate the person far more than simply matching a salary figure.

Letting People Move On

Of course, the best prevention is to have a great company culture, where you’re really focused on retention in the first place. Then if someone does get a call from a recruiter, they’re unlikely to even answer it because they love their job. 

But if they do answer the call, maybe it’s time for them to move on. Perhaps they’re not enjoying their role with you as much anymore, or they’re tired of the whole industry. Maybe they just want a new challenge. Convincing such a person to stay with more money could mean you end up with someone who’s actually not going to perform at the level that you need. Sometimes it’s better just to let people move on to their next adventure.

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