November,
1997
The
Last-Minute Madness of Counter-Offers
ON FRIDAY, JUNE 13, Sandra Sullivan walked into her boss’s
office to resign. A large consumer products company was offering
her an additional $30,000 to join them in the same Director-level
position she held at Consolidated.
Frank,
her boss, had hoped to play golf that weekend. Instead, he
now had to consult with both the COO and the HR vice president
as to whether Consolidated would try to match the offer.
The
bitter irony was that, just nine months earlier, Sandra had
been earning $75K as Associate Director of the department.
When her boss left to take another job, the Company had promoted
her to take his place and had raised her salary to $90K –
a nice increase that still left sufficient room in her salary
range. But to match the package now on the table, Consolidated
would have to offer $120K and blast right through the ceiling
of her range.
Worse
yet, not only would a counter-offer wreak havoc with salary
scales, it also would send a signal through the organization
that disloyal behavior – in the form of seeking other
employment offers – could earn big dividends. On the
other hand, Sandra was one of the highest-ranking women in
the Company and among its most talented managers. To lose
her, especially after only nine months on the new job, would
be a big blow.
There
seemed to be no right answer…
The job
market is hot! Over the past year, seven jobs have been created
in the United States for every four jobs lost, and unemployment
stands at 4.9 percent. As a result, companies are paying top
dollar to attract good people and keep the ones they’ve
got.
This
in turn has led to counter-offer madness. If you want to hire
someone, the chances are high that the current employer will
try to match or improve upon your offer. If another company
is trying to hire your employee, you will be tempted to do
the same.
In the
words of a recent front-page article in The Wall Street Journal,
"Job hopping prevails amid a cornucopia of vacancies.
Those with the scarcest skills or willing to take risks by
jumping into new and fast-growing businesses are dictating
their terms and leveraging employers against each other to
sweeten compensation packages…"
The Boss
in the cartoon strip Dilbert said it more succinctly: "Our
policy is to give big raises to people who spend their time
interviewing for other jobs."
Can
the Cycle Be Stopped?
In what
is arguably the tightest job market since the 1960s, companies
are finding they have to "pay to play." But having
wrung virtually every last drop of productivity improvement
from their workforces, they are finding few remaining places
in their budgets to absorb compensation increases.
In the
next year or two, if nothing is done to stop the cycle of
endless bidding to attract and retain employees, most companies
will have to raise prices or watch their profits erode.
Since
offers can be nullified by counter-offers, and counter-offers
nullified by counter-counter-offers, the potential for havoc
is large. If a company is in the employee retention mode,
the key is to reduce employee vulnerability to offers in the
first place. If a company is in the hiring mode, the key conversely
is to make the initial offer stick.
There
are certain stars in any organization – the fast-trackers
– who are clearly destined for greatness. Given the
right signals about their future potential, the right mobility
and the right compensation, they are unlikely to leap at each
and every offer of employment that comes down the pike. If
a recruiter hooks them, it is generally for a very substantial
increase in pay and responsibility.
Just
below the fast-trackers, however, is another, larger group
of people who perform the tasks that keep the enterprise going
– even if these individuals are unlikely to be future
CEOs. They are often "slotted" in a job for which
their skills seem to be well matched, will sooner or later
see their base salary top out and may or may not have the
kind of supplemental pay and benefits that create "golden
handcuffs." Even though they at first describe themselves
as happily employed, underneath may be a level of dissatisfaction
that a good recruiter can help them verbalize. ("If there
were things you could do to improve your job, what might these
be?")
- Human
resources professionals can generally offer many good ideas
– of both a financial and non-financial nature –
for increasing job satisfaction. Fruitful areas for examination
include:
- Variable
compensation plans, allowing companies to provide near-term
rewards to above-average performers;
- Longer-term
incentives (deferred compensation, stock options, forgivable
loans, retention bonuses, etc.) that reward employee loyalty;
- Benefit
improvements that create a competitive advantage over other
employers; and
- Workplace
improvements (flextime, relaxed dress codes, on-site daycare
centers, etc.) that make employees feel good about working
for you.
While
these kinds of enhancements may cost a few dollars, they are
likely to be cheaper than bidding wars to keep your best employees,
which in turn may drive up salaries for everyone.
In addition,
ask each manager in the organization to draw up a "short
list" of key employees that the company would prefer
not to lose. Then ask if each of these employees is being
treated and rewarded in a way that encourages them not to
leave. If not, take corrective action.
Making
Offers Stick
Sometimes,
of course, you’re on the opposite side of the table
– attempting to hire a star performer from another company.
In the
pool of prospective candidates whose skills and backgrounds
appear to meet the position requirements are those who may
be seriously interested in the position – and those
who are not. Some candidates pursue interviews and job offers
for simple ego gratification. Others may want to test the
water in order to determine their current marketplace value.
Still others may want to use a job offer to improve their
current title, responsibilities and compensation. None, however,
want to share this information with the purported object of
their affections.
The skilled
executive search consultant not only identifies and recruits
highly qualified candidates but, just as importantly, asks
the kinds of questions that determine the candidate’s
true interest in changing jobs for the right opportunity.
Moreover,
good recruiters know the market and can provide helpful counsel
on what kind of compensation and benefits package will be
required to make the serious candidate accept an employment
offer.
Regrettably,
some companies prefer to go into a direct loop with a candidate
following a successful interview. Sanford Rose Associates
calls this "do-it-yourself hiring."
The dangers
in DIY hiring are plentiful: Offers get extended in a vacuum,
with little knowledge of the candidate’s probable reaction.
Minor sticking points become major obstacles. The candidate’s
sincerity may be in question. Small improvements that might
make the offer too good to be refused are overlooked. And,
last but not least, the candidate loses the advantage of an
outside coach (the search consultant) who can guide him or
her through the minefields of a counter-offer.
For example,
there are ways to resign and ways not to resign. There are
risks in accepting a counter-offer that may not be apparent
to the candidate at first glance. The skilled executive recruiter
can extend a helping hand throughout the resignation process
in dealing with these and other issues.
If the
right offer is made to the right candidate in the right way,
it will survive the temptations to your candidate of a counter-offer.
This means, in turn, that there will not be an ever-escalating
series of offers.
In both
the hiring and retention of good employees, smart planning
can help your company stay fiscally fit by avoiding the last-minute
madness of counter-offers. It’s well worth the effort.
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