November, 1997
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:
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.
If you work in a large, multi-unit organization, others – including the corporate Human Resources and MIS Departments – might appreciate copies of this issue. These can be ordered from your Sanford Rose Associates search consultant.
©1999 SRA International, Inc. All rights reserved, including electronic reproduction or alteration. This SRA Update is published for the clients of Sanford Rose Associates.