EMPLOYER MYTH #5: Counteroffers are ineffective and not a good use of compensation funds.
FACT: Often times, inadequate compensation, if validated against market benchmarks, can be corrected with an equity adjustment between 10-12%.
Losing a valued employee due to compensation issues can be a costly process. HR professionals estimate that turnover costs an average of 33% of a replaced employee's annual base salary. Conventional wisdom suggests that the actual cost could range from a minimum of 50% to several times the incumbent's annual salary, depending on the individual being replaced.
In the survey, employees were asked to name the minimum salary increase it would take to keep them in their current position. Salary.com matched the salary increase amounts against the primary points of dissatisfaction with their jobs. It was determined that employers may be able to stave off turnover with salary increases between 5% and 11%, depending on the reason for dissatisfaction.
Most employees, however, say they could be convinced to stay in their current job for another year for 10% to 15% in extra pay. Counteroffers can be an effective tool if retention is mutually beneficial to both sides. If a counteroffer was used to keep a valued employee making $80,000, it would cost $8,000 to retain or well over $40,000 to replace in hard and soft costs.
Over half of employers state they have used counteroffers but not as an on-going retention tool. Effectiveness comes into question because the average counteroffer often comes in under the employee's minimum to stay. When used, counteroffers average just 8%, which is below the typical employee salary goal - reducing the likelihood of retention and rendering the tactic less effective.
Tip: Use counteroffers to entice key talent that is otherwise satisfied with their position and company. While counteroffers should not become a blanket retention strategy, it can be effective when implemented appropriately.