August 1, 2011

To Counter Offer or Not to Counter Offer?

To Counter Offer or Not to Counter Offer?

Whether a prized executive has been actively looking for another opportunity, or unexpectedly recruited for a new position, should you make a counter offer to keep him or her?

Every situation will be different of course, but here are some things to consider.

On the one hand, …

The cost of recruiting is considerable. Estimates we’ve read vary from 100 to 300% of annual salary. Costs will vary based on the industry, position, job market, and internal processes. Besides the obvious hard costs such as recruiting fees (internal or external), job advertising, and interview travel, legal contracts, there may also be relocation expenses and sign on bonuses involved. But don’t under estimate the costs of your time, especially if you are not able to rely on a specialized third party. The time involved from your team and other decision makers is also an important cost element in any hiring process.

The cost of bringing a new hire up to speed can be formidable too. There are internal costs and time commitments. There are administrative tasks such as setting up benefits, and taking care of various HR and legal tasks. There are strategic and tactical processes: You, your team, others in the company will need to spend time acquainting the new person with your business goals, processes, work methodologies. Your company may have a formal training process internally or externally, either way it takes a combination of time and money.

The cost of a bad hire exacerbates the situation. If this is the wrong hire, unfortunately the company may find itself needing to pay out severance and benefits to remedy the situation. There could be a legal dispute over expectations. You may need to bring in outside consultants to mitigate the situation, champion a project, coordinate a team, and keep things going. There is lower productivity, damage to employee morale, and potential loss of intellectual property that result as well.

The opportunity costs of late or lost business can mount quickly too. If the departure of your valued executive leaves you in the lurch and project deadlines are missed, product launches are delayed, sales meetings and client relations neglected, strategic planning put off. These missed opportunities can put you behind the eight ball in a time when competition is acute. Not only immediate sales dollars are at stake but good will and reputation can suffer causing negative economic consequences now and in the future.

On the other hand …

Your valued executive has another offer but could be tempted to stay by a counter. Part two of this article looks at talent management issues that need to be considered in terms of outbidding an offer, countering based on the executive’s motivations, potential consequences of a counter, and systemic voluntary separation causes you should consider addressing.

To be continued on Hook, Line, and Sinker next week.

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  1. [...] part one of this article, we considered the costs of recruiting, hiring, and training as well costs of a bad hire and the [...]

    Pingback by To Counter Offer or Not to Counter Offer? Part 2 | Hook, Line & Sinker — August 9, 2011 @ 7:03 AM

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