When a valuable employee tells you that they’ve received a job offer from another company, making a counteroffer may seem like a no-brainer.  But before you do, consider these potential downsides.

If you are throwing money at jobs, think twice.

Owners that have not paid attention to employee compensation on an annual basis will now be faced with a demand for catch up.  Compensation ranges are available and employees know the market compensation rates.

We are seeing the early impact of throwing money at jobs, everyone is hiring, and employees are jumping to the next highest offer without intention about how long they will stay.

Don’t just offer more money, build a solid compensation structure.  You can retain your workforce in varying economic conditions if compensation has a place on the strategic planning agenda.

Consider the following indicators that your approach to compensation needs attention.

• Increased turnover
  • New employees are not staying long.
  • Management is retained and teams are leaving.
  • Unused exit data on what employees are telling management.
• Performance problems
  • Employees are not meeting goals.
• Difficulty securing candidates
  • Top candidates are declining offers.

Align Compensation and Contribution

Employment surveys reveal that most people don’t leave a job because of money alone, so it’s not likely your counter-offer will address the underlying issues that may have provoked an employee to pursue other opportunities.

A raise (and maybe a new title) will not be enough to keep an employee from becoming a flight risk again in a few months.  In the small business world, every decision you make will set precedence for the rest of your workforce.  If you are offering more compensation to attract new employees or to keep a current one, your teams will wonder if they are being fairly compensated.

Avoid an impromptu approach to keeping people engaged.  Spend time on clear alignment of roles and expected contributions, and plan associated compensation using current ranges.  Retaining top performers requires continual development of personal contributions, as part of a long-term working relationship.

What does your long game look like? Most small business employers and leaders view the long game as: we are flexible, we are understanding of employee needs, and we get along with one another. That is part of cultural development. What you need next is a super clear line of sight about a role and the associated compensation for meeting performance goals.

A compensation plan is a decision-making guide.  You can avoid reactive responses to the current money grab job market.  A strategic view of positions and compensation ranges will provide you with a basis for adjustments and the ability to maintain a fair compensation structure across your workforce.

Recognize that a counteroffer may sow doubts about your leadership.   People talk.  If you are offering a new hire more than tenured team members, word will get out.  Then key people will leave—or if they stick around, they lose trust and your relationship is vulnerable to lagging interest, loss of commitment, and performance deficits that could have been prevented.  A lack of leadership around compensation feels to employees like their loyalty goes unrecognized and even penalized.

If an employee is offered money to stay, and they are not viewed as a high performer, any performance deficit will not only reflect badly on the individual, it will also reflect poorly on your ability to assess and coach talent. More money gained by some may stimulate an emotional response that spurs on your workforce to start looking at new opportunities.

A counteroffer can negatively impact team morale.  If your employee shares their new salary with the team or jumps up the org chart, the rest of your team could be left feeling undervalued. It can also erode respect for the individual if others don’t feel he or she deserved the promotion and got it by threatening to leave.

Consider the long game of employee engagement and retention as more than money.  Weigh the impact of one person leaving against potentially losing the trust of the rest of your team. Implement a compensation structure to guide your decision making and retain your best talent in any market.   People and Money, plan wisely, retain top talent.