Avoiding the counter-offer trap

This is the setup: You’re in a leadership position, and one of your subordinates informs you that they’ve received an offer from another company, an offer that they have already accepted or are “considering” accepting because it’s financially better than what they currently have.

What now?

(Disclaimer: My experience, and thus this text, focuses on how this works in IT companies. While there may be differences in other industries, many aspects will likely still apply.)

The first thing you should do is clarify is finance the only reason they want to leave?

• Is their current position lacking opportunities for career growth? If so, is it because others not-likely-to-be-moved people hold all higher positions, or is this person stuck in a setup with minimal hierarchy?
• Is the position lacking opportunities for professional development? Are tey working on a sunset/maintenance project with legacy tech stack?
• Is the team dynamics and atmosphere problematic? Was this person never fully accepted by the rest of the team? Is there someone toxic making this person, or everyone else in the team/office, feeling miserable?
• Is the current project/product itself unmotivating?
• Is the work-life balance suffering? Are they burned-out from continuous overload and stepping-in for others?
• Is there something wrong with the team setup that is causing problems in work? Is communication broken? Unclear ownership?
• (Is there some disturbance in their private life? I had situations in my career where people hoped a change in career will also result in a change in their private lives, that they will do some kind of “reset”.)

It’s important to acknowledge that in the IT industry dissatisfied employees have a much easier time changing jobs compared to many other industries. The demand for skilled engineers and managers still outpaces the supply, making it relatively straightforward to find better offers if unhappy. This imbalance means that retaining talent requires not just competitive financial compensation. So, once you learned that there are additional reasons for this person’s dissatisfaction you must commit, not just promise, to addressing them. Move this person to another vertical with more growth or learning opportunities. Remove that “rotten apple” person from the organization. Reorganize team(s) or redistribute work to help with overload. Do whatever it takes to make that person feel valued and respected.

But don’t make a financial counter-offer.

Particularly don’t do counter-offer if the person cannot provide meaningful reasons beyond salary for wanting to leave. Sometimes people will fabricate or exaggerate reasons, to make themselves feel more comfortable with the decision they made, but these are typically easy to spot and are rarely genuine.

Let’s break down why financial counter-offers don’t make sense:

1. If the person is only seeking a better financial deal then by matching, or maybe even exceeding, the external offer will just buy you some period of time. The person will likely return soon (in a few months or maybe a year) with the same story and agenda. You solved nothing.
2. If the person is underpaid, and you gave better finance only after they threaten to leave… Then this is a signal of huge disrespect toward them. It means that you had the resources to pay them fairly all along but didn’t. Maybe it wasn’t you personally who kept them underpaid and it was higher company decision, maybe it was you who went now and battled for their salary increase, but it doesn’t matter. What would remain, if that person accepts your counter-offer, is a bitter taste and highly likely an unmotivated team member. Solve that earlier, don’t wait them to come with external offer.
3. If you give counter-offer be aware that others in the organization will know this as words travel fast. And soon you will have others knocking on your door with the same request. This could drain your budget, it can lead to even worse dissatisfactions (“How he got the salary increase, and I can’t?!”), and it will create a lot of noise that will distract you from your actual work…

But (!!) there are exceptions where financial counter-offers might be considered:

1. If the person is vital to delivering an incoming key milestone (a single domain/tech expert, or there is no chance to replace them on time in case of departure), and milestone is critical for something like securing investors or retaining existing clients, then you might have to accept the previously mentioned risks associated with a counter-offer. In this case, the delivery is your by far top priority, and whatever happens after must not upset you as you have accepted those risks.
2. If your company conducts salary increase cycles on a set schedule, such as at the start of the year alongside formal performance reviews (a good practice that sets clear expectations with everyone, and also removes noise from your work for most of the year), and the person approaches you later in the year (September–November), you have two potential approaches:

• Agree now but push the salary increase to start as of January. Explain that you understand situation and that the raise is deserved (if it is), but that the company policy dictates salary adjustments to happen in January. In this case you are even fine to offer a larger increase than the external offer is, in order to compensate for the delay.
• Give increase immediately but make it clear this adjustment will exclude them from the incoming cycle in January. Even if others learn about this early increase you can justify it as being really close to year end and that it meant exclusion from the cycle. Not ideal excuse, but not so bad.

Summary:

• Being responsible for someone else’s financial agreement is never easy.
• Take the time to understand any additional pressures or dissatisfaction beyond finance.
• Avoid, if anyhow possible, to give counter-offers.
• Try to have a structured rhythm, ideally on a yearly basis, for salary reviews and performance evaluations. This will give you some manoeuvre space to deal with these situations.