Counteroffers: band aid solution or smart retention tactic

It’s no secret that the employment market is tough for employers right now. As of February 2023, Australia’s unemployment rate has remained steady at 3.5% (Australian Bureau of Statistics), and in the recruitment market in Canberra this is even lower at 3%.

This has impacted how companies are hiring talent, from how they are structuring the employment agreement and remote and hybrid working options, to offering above market salary and hourly rates, and additional incentives. The competition to not only find but keep the best people has meant that counteroffers are a common feature in the job market today. It has become so commonplace that it’s now a question for candidates during the pre-screening process: How likely is it your current employer will make a counteroffer?

There is plenty of recruitment advice available for candidates when it comes to considering and accepting a counteroffer. However, there are steps employers can take to avoid this situation and retain their team members.

The dangers of making a counteroffer

Some research indicates that more than 50% of counter offers fail to retain the employee beyond 12 months. At Capital Recruit, we experience this often – we’ve interviewed a candidate, found them a new role, and then they accept a counteroffer from their current employer. Yet a few months later, the candidate contacts us again because the counteroffer was a band aid solution to a much larger or ongoing issue.

Before the counteroffer

If you’re in a position where you’re considering making a counteroffer, ask yourself the following questions.

What have been the opportunities for feedback?

Assess your internal processes for opportunities to seek feedback. If you and your employee have regular one on one conversations about performance that also includes two-way feedback, the employee may have raised concerns or issues previously that have not been addressed.

Often, an employee will seek new job opportunities because their frustrations have not been heard. Or if they have been heard, nothing has been done to address the cause. If the cause of frustration has no immediate solution or requires a long time to be solved, has that been communicated?

Working to actively solve challenges also increase job satisfaction – because they know their employer cares.

Has their salary kept up with the market?

Sometimes candidates are seeking a higher salary to align with what the market is offering someone with their skills and capabilities. When market rates increase due to the competitive nature of a candidate-short market, it is only natural that employees would look for greater remuneration elsewhere.

Regularly reviewing the salary packages of your employees to align with the market rate of comparative roles in similar industries, you can make adjustments that fit within your HR strategy and budget.

An ideal time to review this would be ahead of annual performance reviews or at the conclusion of a big project, and award increases according to market rates and performance. You’ll be in a better position to offer a pay increase before your employee asks for it, or have an informed response prepared if the news isn’t what they are hoping for.

What do they really want?

So you’ve listened to feedback and worked to address the cause of frustrations, and you’ve aligned their salary to rates that are reasonable for your business, but your employee has still resigned.

This may come down to other factors, such as what the employee is really needing from work. According to Simon Sinek, for Millennials and Gen Z, finding their purpose at work is essential to job satisfaction. It may be the nature of their day to day work or inability to see the bigger picture that is causing a disconnection. This may mean they don’t see the value or meaningful impact of their work.

Narrowing down what the employee needs to thrive and want to come to work every day may be something simple, like being involved in an exciting new project. Moving to a new team, expanding their skill set, new learning opportunities, or more flexibility can be reasons employees resign. These can often be addressed if you can unlock their true motivations at work.

Is this an ultimatum?

If you’ve worked on resolving challenges, assessed their salary against the market, and involved them in work they really enjoy, but the resignation still feels like an ultimatum, it may be best to let the candidate go.

While not ideal, sometimes it’s better for the employee, and can benefit the rest of the team (think about the impact on morale if an employee stuck around only for the money yet still experience ongoing issues!) if you don’t make a counteroffer in cases like these. Providing a reference and wishing them well sometimes is the best outcome.

When counteroffers work

There are plenty of situations where counteroffers have been successful in retaining talented people in your team. The counteroffer can be a productive tool when you take the time to understand your employee’s motivations and work to find a solution that works for both of you.


To help you navigate whether you should make a counteroffer, or chat about your workforce needs, contact our specialist recruitment consultants.

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