How To Negotiate With An Employee Who Has A Better Offer

By Mark Swartz
Canadian Workplace Specialist

“I’ve received a job offer from our biggest competitor,” your trusted IT Manager tells you. “They’re willing to pay higher and make my work schedule more flexible.” You hesitate. “I’d really rather stay here though,” they add, “if you can match their offer.”

Now you’re wondering how to respond. This employee is definitely a valuable part of your team. Keeping them happy and loyal could be worth your company’s while. But are there downsides to negotiating, and will this set a bad precedent for others?

Why You Might – Or Might Not – Want To Consider Negotiating
Losing a valued employee can be costly. Not only in terms of replacing them with someone new – which could add up to tens of thousands in terms of downtime and hiring expenses – but also morale can be lowered when your other staff see you letting talent walk right out the door.
These are good reasons in favour of negotiating in order to keep that valued employee. However other considerations could make you think twice.
Like the precedent it might set: you don’t want to start a stampede. It’s one thing to negotiate with a single, valued employee (in private). It’s another if everyone else assumes you’ll match whatever outside offers they can wrangle.
Furthermore, what’s to guarantee that buying this particular employee’s loyalty will hold them there for long? Or that once you give in to their demands, they’ll continue performing at their previous level?

When It Makes The Most Sense To Counter-Offer
It can make financial and workforce-dynamics sense to negotiate when the following conditions are met:
  • The employee in question is truly an integral part of your team, and is worth the effort (and expense) of counter-offering
  • It would be difficult, or overly expensive, to replace that person if they were to leave
  • You can manage the expectations of your other loyal employees so that they don’t all run out to get competing offers of their own, assuming you’ll match them
  • Your company can afford to match the valued employee’s offer dollar for dollar, OR can provide appealing alternatives to salary such as flexible hours, telecommuting, a better title, increased responsibilities, enhanced benefits that are inexpensive, etc.
  • There is little likelihood the valued employee will take advantage of you by getting lazy, uncooperative or downright snooty after accepting your counter-offer
Start Your Negotiations By Finding Out The Employee’s Needs

If you do choose to negotiate a counter-offer, you’ll probably want to ask the employee why they’d sought out a job elsewhere in the first place. Is it really because they feel underpaid here?

The more you understand the person’s underlying motivations, the better your chances are of offering what matters most to them. Otherwise you could find yourself outbidding yourself on salary only to discover you could have offered less of a pay raise and more time flexibility.

Play Up Your Non-Financial Benefits First
Smaller employers often have limited budgets for raises and bonuses. So point out all the wonderful things about working at your company compared to the other employer. Maybe you’re closer to the employee’s home or more accessible (by transit, walking, cycling). Do you have a friendlier workplace culture that’s less formal?

Can you offer personalized mentoring?

If the other employer is known for firing people, operating like a bureaucracy with many layers, or isn’t an innovator, then feel free to make note of these deficiencies.

You are trying to emphasize the relative positives your company provides. If you can make the person feel valued or assign them to a great boss, on the whole these may outweigh a 20% pay raise (which will probably get taxed at a higher rate anyway).

Try Not To Be Outrageously Generous Financially
Maybe you can fully match the competitor’s compensation offer, maybe not. If you absolutely have to meet their figure – or even offer a premium above it – and you can afford to do so, use this as a last measure only. Surely some of the relative positives your company provides can offset money to a degree.
In any event, salary isn’t the only way to boost compensation. How about increasing the employee’s education allowance? Also, adding another week of paid vacation is a popular perk.

Agreeing To Part Ways
It may turn out that the employee has their mind made up to leave regardless of your counter-offer. Or maybe you can’t justify matching the offer they have in hand. Either way your valued employee is going to leave you.
Should that come to pass, at least you’ll have tried to stop it from happening unnecessarily. Ideally you’ll part on friendly terms. The employee will give adequate notice, and you’ll get their insights during an exit interview. 
Sometimes you have to accept that talent comes and goes. There are budgets that must be adhered to and you can’t always pay top dollar. But if there are internal problems that continually drive your best staff away, it’s time to think about fixing things from the inside out.

Make the Right Hiring Moves Before You Negotiate

When you’re hoping to hire a candidate with one or more other offers on the table, you may be tempted to go “all in” on this high-demand individual. Sometimes that’s the right move, but not always. The first thing you want to do is ensure that you’re reaching the best candidates from the start. Monster can help with a free job advertisement on its world-class job board.