NZ is seeing a rise in counteroffers – but is this best practice?

More counteroffers are on the table for many of New Zealand's workplaces this year, as 79% of hiring managers have offered more counteroffers in the past 12 months to March than in the previous years.

For 33%, counteroffers made a significant impact in their hiring process, but for more than a quarter, these counteroffers are made to departing staff, found a survey by Frog Recruitment.

Retaining employees in certain sectors has become quite challenging over the last couple of years, and there has been more competitive recruitment than in other times, says Andrea Twaddle, Director, Employment Law and Workplace Investigations at DTI Lawyers.

“Civil construction is one where there is a lot of movement of people,” she says. “Other predictable sectors like healthcare are seeing a shift too, partly as a consequence of some of the pay equity settlements - with payments made to public sector or publicly funded sectors, and then the private sector trying to catch up in terms of remuneration.”

How to respond with a counteroffer

Employers faced with a counteroffer situation should be very clear about the reason an employee may be considering leaving and whether they actually have a firm offer or whether they are using that as a negotiating tool, says Twaddle.

There are a few phases to the process, she says.

“Like anything, the starting point will be having good faith communication with your employee, understanding what it is the employee is attracted to in a different environment, and then considering whether or not they can either meet that offer through remuneration or other benefits and other terms of employment,” says Twaddle.

“Then, employers need to consider whether or not that's something they actually want to formalise in the counteroffer because there is a risk that those accepting one will still look to leave for the same reasons they had when that initial conversation happened.”

Legal considerations to counteroffers

From a legal perspective, employers considering a counteroffer must bear in mind that if the offer is accepted, the terms of employment will be binding.

“Employers should be very mindful about whether they're actually making a firm offer or whether they're having a conversation about what the employee might accept, and in doing so, considering that their good faith obligation is not to be misleading or deceiving.”

Counteroffers don’t necessarily involve increased remuneration, as Twaddle say she is seeing variations to employees’ contracts such as the addition of benefits like more flexible working, wellbeing allowances, medical insurance and provisions of vehicles.

“’I don't think there's one magic bullet to resolve retaining employees,” she says. “Generally, it’s a combination of terms of employment and the working environment as opposed to one or the other.”

Even if a counteroffer is accepted, research has shown that in the majority of cases, within six months, the employee still leaves, says Twaddle.

Ramifications of resignations and counteroffers

There are other potential ramifications too, like other employees hearing of the situation and trying to also negotiate higher pay.

There are situations too where negotiations have become messy, for instance if an employee has tried to use a resignation as a bargaining tool and then tries to retract their resignation because they didn’t get the counteroffer they’d hoped for.

“Once an employee has resigned, an employer is under no obligation to then accept the employee trying to retract that resignation,” says Twaddle.

Other potential complications arise when an employer’s supervisor management team makes an offer they didn't have the authority to make and the employer then tries to step back from that offer.

“The question then becomes whether or not an offer was made and accepted by the employee, or whether they were simply in bargaining for new terms of employment. So that's a scenario that can be problematic as well, because clearly if there's a lot of goodwill, that would be destroyed and sometimes it ends up in a dispute, which then has to be resolved,” she says.

Avoiding counteroffer situations in the first place

Overall, the best approach is to avoid counteroffer situations in the first place, says Twaddle.

“For the most part, this would involve having structures in place around paying staff fairly, an employer knowing what they’re benchmarking within their industry, and giving employees transparency.

“That's not necessarily the actual details of remuneration of other staff, but certainly pay bands, how people can progress, the criteria for progressing to different bands, when they will be reviewed, and how that review will take place.”

The other important consideration, she says, is the workplace environment in terms of employee wellbeing and the culture of the workplace.

“That engagement with employees about what they want work to look like, what they want the working environment to be, becomes really important. If you're not talking to your employees about that, you'll always be on the backfoot.”