Latest / Hiring & Firing with Fexingo: Recruitment, Performance, and Workforce Decisions / Why Counteroffers Are Costing Companies More Than They Save
Transcript
- Lucas: Picture this: one of your best engineers walks into your office on a Tuesday afternoon and says she's leaving for a competitor. Your first instinct — if you're like most managers — is to ask what it would take to get her to stay. Maybe a 15 percent raise, maybe a promotion to senior, maybe a four-day week. Luna: And a lot of the time, she stays. At least for a while. So what's the problem? Lucas: The problem is that the numbers say that offer almost never works in the long run. A 2025 study from the Institute for Corporate Productivity tracked over 2,000 employees who accepted counteroffers. Within twelve months, nearly 80 percent of them had left anyway — either voluntarily or because the relationship soured and they were let go. Luna: Eighty percent? That's brutal. So the counteroffer is basically a Band-Aid on a broken retention strategy. Lucas: Exactly. And the cost of applying that Band-Aid is significant. The same study found the average counteroffer package — salary bump, bonus adjustment, maybe a title change — costs the employer about 20 percent of the employee's annual salary. For a senior engineer making $180,000, that's a $36,000 bet that fails eight times out of ten. Luna: And that's before you factor in the morale hit. If you give one person a big raise because they threatened to leave, everyone else on the team notices. They start thinking, 'Maybe I should shop around too.' Lucas: Right. There's actually a term for that. It's called 'retention inequity,' and it's one of the reasons companies like Netflix have a formal policy against making counteroffers. They'll say, 'We're sorry to see you go, but we pay our people their market rate from day one. If you need an external offer to get the compensation you deserve, we've already failed you.' Luna: Netflix is extreme. But there's a logic there. If you have a transparent compensation philosophy, the counteroffer shouldn't exist because people are already paid what they're worth. Lucas: Which brings us to a really interesting case. There's a mid-sized tech company in Austin — let's call them SwiftStack — that I spoke with for this episode. They had a director of product who was poached by a bigger firm. The CEO made a counteroffer: a 25 percent raise, a new title, and a direct-report to the C-suite. The director accepted. Luna: Let me guess — he was gone within the year. Lucas: Eight months. And here's the kicker: during those eight months, three other product managers found out about the deal and started interviewing. Two of them left. SwiftStack ended up spending about $250,000 on replacement hiring costs, signing bonuses, and lost productivity. All because they tried to retain one person with a last-minute bribe. Luna: And that's the hidden cost nobody talks about. It's not just the salary bump — it's the ripple effect on the rest of the team. Lucas: Look, if these conversations have moved your work forward in some small way, we want to mention something. This show — and all our shows — are deliberately ad-free. We don't run commercials, we don't have sponsorships. That's a choice we made because we think business content shouldn't be interrupted by someone selling you a CRM. Luna: Yeah, and it means everything you hear is exactly what we think. No cuts for a promo spot. Lucas: If you want to support that choice, you can find us at buy me a coffee dot com slash fexingo. No pressure, no perks — just knowing the show stays independent. And now back to why managers keep reaching for the counteroffer lever when it so clearly doesn't work. Luna: So why do we keep doing it? Is it fear? Ego? Lucas: Both. There's a psychological concept called 'loss aversion' — we feel the pain of losing someone more intensely than the pleasure of having them. So when a resignation letter lands on your desk, your brain screams 'Fix this now' even if the rational data says the fix is a bad bet. Luna: Plus, there's the short-term disruption. If that engineer leaves, you have to recruit, interview, onboard — all while the team is down a person. A counteroffer seems like the path of least resistance. Lucas: Exactly. But the research consistently shows that people don't leave for money alone. A 2024 Gallup study found that compensation ranks as the fifth most common reason for voluntary turnover — behind things like lack of career development, poor management, and work-life imbalance. If you throw money at those deeper issues, it's temporary. Luna: So what's the better approach? I mean, we can't just let every good person walk out the door. Lucas: The better approach is to have the conversation before the resignation. Stay interviews. Regular, structured check-ins where you ask: 'What keeps you here? What would tempt you to leave? What do you need to grow?' Patagonia does this quarterly, and their voluntary turnover is about half the industry average. Luna: Stay interviews — I love that term. It flips the script from reactive to proactive. Instead of waiting for an exit interview, you're asking the questions that prevent the exit. Lucas: And exit interviews themselves can be a goldmine — but only if you actually act on the data. I've seen companies collect exit interview feedback for years and never change a thing. They just file it. That's not a strategy, that's a ritual. Luna: What about the idea of a 'no counteroffer' policy? Is that realistic for most companies? Lucas: It's hard, but it's gaining traction. I know a financial services firm in Chicago that implemented one three years ago. They told all managers: 'If an employee resigns, you may not offer them more money to stay. You can wish them well, schedule an exit interview, and that's it.' The first year, they lost a few people they really wanted to keep. But by year two, managers started doing more stay interviews and career planning because they knew the safety net was gone. Luna: So the policy forced better management habits. Lucas: Exactly. And their voluntary turnover actually dropped by 12 percent over the three-year period. Because they were fixing the underlying issues instead of papering over them. Luna: There's one more angle I want to touch on — the counteroffer from the employee's perspective. If you accept one, what's the message you're sending to your manager? That you were willing to leave unless they paid you more. Lucas: Right. And trust me, your manager remembers that. The i4cp study found that employees who accept counteroffers are 35 percent more likely to receive a negative performance review in the following cycle. There's a stigma — they're seen as flight risks, less loyal, harder to manage. So even if you stay, you're in a weaker position. Luna: And the new employer who made the original offer? They've already moved on. You burned that bridge. Lucas: Exactly. So the counteroffer is a lose lose lose. The company wastes money, the employee damages their reputation, and the team gets demoralized. And yet, I'd bet that in the next month, more than half of the companies listening to this episode will make at least one counteroffer. Luna: So what's the one takeaway you'd leave a manager with? Lucas: If someone resigns, resist the urge to negotiate. Instead, ask yourself honestly: 'Why didn't I know this was coming?' Then fix that. Because a good retention system doesn't need counteroffers. Luna: And for employees — if you're thinking of accepting a counteroffer, ask yourself why you wanted to leave in the first place. If it's not just about money, that raise won't fix it. Lucas: I think that's a good note to end on. Next episode, we're going to look at something that's been getting a lot of attention lately — the rise of fractional executives. Part-time C-suite talent for companies that can't afford a full-time CFO or CTO. That's episode 32. Luna: Fractional execs — I've seen that trend accelerating. Should be a good one. Lucas: Alright, talk to you next time.