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Why Counteroffers Fail to Retain Top Talent

Resignations are unavoidable in today’s tight talent market. In-demand Accounting and Finance professionals are being tempted by offers that promise better compensation and benefits, growth prospects, or a company culture that aligns with their values. Even the healthiest companies in Southern California are navigating high levels of turnover, which they anticipate will persist throughout the year.

When faced with the resignation of a valued employee, many hiring managers respond with a counteroffer — a last-ditch effort to entice the employee to stay by sweetening the deal with a higher salary, better benefits, or a promotion. However, resignations are rarely about money, and this short-term fix fails to address the underlying reasons behind an employee’s decision to leave, Forbes reported.

Rather than relying on reactive measures, employers should think twice before executing a counteroffer to retain talent. That response can do more harm than good, triggering problematic consequences that undermine long-term workforce stability.

The Limitations and Risks of Counteroffers

An employee who has already decided to leave is unlikely to have a change of heart solely due to a pay raise or promotion, as HBR reported. Failing to understand and address the true motivations behind an employee’s resignation can lead to a cyclical pattern of turnover because the same issues that prompted the initial departure will likely resurface — even after a counteroffer has been accepted.

Three significant risks outweigh the potential short-term benefits of executing a counteroffer:

  1. Setting a dangerous precedent. Establishing a pattern of counteroffers to retain talent can backfire. Employees may begin to view resignations as a bargaining chip where individuals actively seek out external opportunities just to leverage them for better compensation — even if they have no real intention of leaving. Human Resources teams then find themselves in a perpetual game of catch-up, struggling to maintain internal equity and control labor costs.
  2. Damaging morale and eroding trust. Counteroffers that result in significant pay disparities or unfair promotions can breed resentment and lower morale among colleagues who may perceive the situation as inequitable. Questions of fairness and favoritism arise as team members wonder why certain individuals receive special treatment. This can lead to a ripple effect of discontent, undermine collaboration, and make it more challenging to retain the rest of the high-performing workforce.
  3. Committing to the long-term, only to regret it. Even if a counteroffer successfully retains a valued employee in the short term, it rarely resolves the reasons behind their initial resignation. While well-intentioned, employers who make lofty promises regarding reduced hours, greater flexibility, or other compromises may severely inhibit a department or company’s ability to meet critical goals and deadlines down the line.

When a counteroffer is made in the heat of the moment both parties agree to terms that are not well thought out or realistic. This creates a lose-lose scenario that leads to frustration and resentment. Employers expect a corresponding increase in employee work quality and overall commitment to the organization once the offer has been accepted. However, the employee’s behavior often falls short because they fundamentally remain unhappy. These misaligned expectations can result in mistrust and resentment that irrevocably damages the employee-employer relationship.

Arguably the most detrimental aspect is that counteroffer commitments are often made under duress — when an employer is desperate to avoid the perceived costs and disruptions of a resignation. Such reactions don’t factor in long-term organizational realities or consequences. Promises get made that may be extremely difficult, if not impossible, to keep once the initial crisis has passed. Furthermore, when the dust settles, and no real change has occurred, 57 percent of employees who accept counteroffers change companies within the following 24 months, according to SHRM.

Responding to Resignations

Responding to Resignations

When an employee does decide to leave and tenders a resignation, you should take a measured and thoughtful approach to identify the root causes behind the employee’s decision. Engage in an open and honest dialogue with the employee to understand their reasons for leaving. Do they feel stagnant in their current role? Is there a cultural misalignment? Are communications strained with their manager? Carefully evaluate whether these concerns can be reasonably addressed within your organization or if you risk making false promises that will only lead to further dissatisfaction. Ultimately, if the employee’s reasons for leaving stem from fundamental misalignments in values, goals, or cultural fit, it may be time to part ways amicably.

There also will be situations when it is simply in the best interest of the employee to let them go. If, for example, they have landed their “dream job” — beyond what you can realistically counter — respect their decision and wish them well.

In either case, it’s best to have an open, honest conversation with the employee, express gratitude for their contributions, and support their transition to a new role. By handling the situation with grace and professionalism, you maintain a positive relationship with the departing employee, protect your company’s reputation, and create opportunities for future collaborations or referrals.

Likewise, hiring managers must take a step back and honestly assess their reasons for wanting to retain that individual. Is there a fear of losing institutional knowledge, an interruption in work, missing deadlines, or a ripple effect on team morale? While these are valid considerations, it’s essential to weigh them against the potential drawbacks of making a counteroffer.

By taking the time to introspect and identify your motivations, you can make more objective and strategic decisions when faced with a resignation. This helps separate personal feelings from business realities and positions you to assess whether a counteroffer is truly the right course of action.

Finally, it’s a harsh reality that many leaders struggle to accept, but no employee —regardless of their talent or tenure — is truly irreplaceable. While top performers may possess unique skills and expansive institutional knowledge, the fact remains that with the right resources and onboarding process, their responsibilities can ultimately be transferred to another individual. Even the most invaluable team members will eventually move on, whether it’s for greener pastures, personal reasons, or retirement.

The true test of a company’s strength lies in its ability to cultivate a deep, diverse talent pool, and build robust succession plans — ensuring a seamless transition whenever employee changes occur.

Be Proactive in Retention Strategies

Employee resignations are a natural part of organizational evolution and help create growth opportunities and career paths for the next generation. However, having a proactive approach to retention can eliminate some root causes of employee dissatisfaction and dramatically decrease the risk of resignations:

  • Offer competitive compensation packages for all employees to bolster satisfaction
  • Implement performance-based incentives and bonuses to reward outstanding contributions
  • Investing in training programs, mentorship opportunities, and cross-functional coaching to support skills development, knowledge acquisition, and loyalty to the organization
  • Provide clear career paths for advancement and promotion

Retention strategies are an investment, but they pale in comparison to the overwhelming costs of continual turnover – both financially and in terms of lost productivity, institutional knowledge, and workforce engagement. Companies that prioritize employee satisfaction will gain a powerful competitive edge in attracting and retaining top talent.

Bolster your Accounting and Finance workforce with top talent.

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