Bob just turned in his resignation, handing you a paper with a single line of text; he was leaving in two weeks.  Cripes!  Bob is one of your best team leads, and his departure will leave a hole in your department that will be hard to fill, especially in the short term.

Is there anything you can do?

At this point the question of a counter offer will pop into every manager’s mind that has ever faced this dilemma.  Give Bob what he wants and he’ll stay – right?  Find out what he has been offered and promise the same.  Problem solved?

Not by a long shot.  It’s not that simple.

Bob may or may not decide to stay, but meanwhile other discontented employees will note your response, the relationship with Bob has already been damaged by his resignation, and any new “arrangement” might create internal equity trouble.  Productivity and morale could be impacted, no matter what happens to Bob.

Your solution might create even more problems for you.

What to do?  Let’s look at the implications of a counter-offer from both sides.

The Employee Perspective

If an employee has made the decision to leave, and subsequent actions have progressed to the point where an offer has been received, then mentally they have already left.  Any internal debate they might have had over making a change has already been resolved, and they are comfortable with their decision.  They may even be anxious to leave, as the new employer offers a fresh start, with new challenges, new faces, increased responsibilities and of course more money.

They may be enticed to stay by increasing their rewards package, but you cannot be certain.  Their true motivation may remain an unknown, leaving you to deal with only what they are willing to disclose. 

If the key catalyst for resignation is not rewards (i.e., friction with the boss, perceived dead-end job, dated technology, long commute, too much travel, etc. etc.) a counter offer focused on more rewards will miss the mark.

The Employer Perspective

If you extend a counter-offer, it will become known and discussed.  Employees may get the idea that such is the way to get a better deal with the company – by threatening to quit.

Those who accept counter-offers often leave anyway within 6 months – that is all the time you have purchased, as other unresolved issues would remain sources of continued dissatisfaction.   More money will not solve those problems, and typically counter-offers address only the money (easy fix?) issue.

Once an employee has resigned, even if later rescinded, their relationship with the company is forever altered.  It is unlikely that the company will have positive thoughts about the individual down the road, even if the immediate manager still loves them.  Career prospects will have taken a body blow.

If you extend a counter-offer and it is rejected, the same internal damage will be felt as if it had been accepted – so you better be careful before extending yourself.  Meanwhile, the employee is no longer considered loyal, and cannot be trusted to remain longer term.  They have been bought.

When could this work for you?

If an employee tells you they are thinking of leaving, vs. actually having an offer in hand, then you have more room to maneuver.  But the company should examine how they deal with threats – because other employees will be watching.

However, if your world will end if Bob leaves, or you need to buy time until a replacement can be put in place or a project completed, you may wish to consider negotiations.

Caution:  line managers may advocate a counter-offer more because their lives are made difficult by an employee’s departure than the business impact of the separation.

Doing it anyway

If you are planning to make a counter-offer, prepare yourself in advance by:

• Learning the nature of the offer you are competing against
• Ensuring your period of vulnerability is minimized
• Developing  a backup employee as soon as possible
• Deflecting employee criticisms over favored treatment, dangerous precedents, etc.  Word will get out, so you should have a story ready that rationalizes your decision.  You do not want to face a host of “what about me?” calls.

For those companies who may have a policy that allows managers to consider counter-offers, the approval process should be visible enough to ensure that the broader issues of business justification are discussed.  Personally affected line managers should not make the call.

A final caution: like a fine aged whiskey you should only sip at this practice and savor the mutual gain, not gulp it down and feel the burn.

Chuck Csizmar, CCP is a member of WorldatWork, the Society for Human Resource Management (SHRM), the Small Business Resource Network and the Florida HR Planning Society. He has been published as a subject matter expert by Compensation and Benefits Review, Florida HR Review and Benefits and Compensation Solutions magazines, and is a regular contributing author for numerous professional association chapter newsletters.  He has been interviewed by The Human Capital Show and hosted teleconferences for ExecuNet.

The mainstream media has often commented on the shift from defined benefit plans to defined contribution plans over the last few decades (see PBS FRONTLINE report). But there has also been a shift within defined contribution plans from “trustee” directed “pooled” accounts to “participant” directed “individual” accounts.

Years ago it was commonplace for employers to sponsor a “pooled profit sharing” plan. Each year the employer would determine how much to contribute and these contributions were held in a single account. The employer would appoint a trustee and/or investment manager to determine how to invest the contributions on behalf of all participants.

Then came the rise of the 401(k) plan. For some reason in a 401(k) plan it was decided that participants ought to choose their own investments. At the meetings I attended where sponsors contemplated adding a 401(k) provision, the logic went something like this: because participants would see the money come out of their paychecks they will want to be (and perhaps ought to be) more involved in the investment decisions.

We have moved from a situation where employees didn’t have to make any decisions, or have any choices, about retirement savings (e.g. the traditional DB plan) to a situation where employees have all the decisions, and have perhaps too much choice (e.g. today’s typical 401(k) plan).

Is this good or bad? As with any most questions, there isn’t a simple answer. However, some additional background might be helpful.

As most HR professionals know, getting participants to pay attention to their retirement plans can be tough. Aside from the few people glued to the web watching their account balance go up and down, the majority are not very involved. Why?

Deloitte conducts an annual  401(k) benchmarking survey. In these surveys, employers consistently report that the biggest barrier to plan participation is a “lack of employee understanding.” Similarly, employees most often report “Where to invest/which funds to use” and “How Much to Save for Retirement” as the more confusing parts of their retirement plans. While automatic enrollment features and default investments may alleviate some of these problems, they are not perfect solutions (see a related blog post on automatic enrollment).

So what about the participants who do get involved? How well do they perform?

Unfortunately, the answer is that they do not perform well. The Michigan Retirement Research Center published a working paper in which they analyzed a rich set of participant account data from Vanguard. They found that most “real-world” participants make mistakes by investing inefficiently and not diversifying their investments enough. In fact, participant investment mistakes account for the majority (76%) of their poor investment performance. These investment mistakes have a significant impact on retirement savings, reducing wealth by 1/5^th over a 20 year career.

Given that many participants don’t want to manage their own retirement accounts, and those that do often make big mistakes, why would an employer give control to participants?

Unfortunately, some retirement plan providers told employers that by handing over investment choices to participants they rid themselves of fiduciary responsibility. While correcting this fallacy is beyond the scope of this post, you should know that the employer can never entirely eliminate their fiduciary responsibility.  In fact, improperly transferring control to participants can even lead to greater responsibility.

Does this all mean that participant choice is a bad idea? Yes, many times it is. However, for many employers taking away this choice is just not feasible. If you must offer participants a choice, do it right:

• Have a well chosen list of investment options covering all asset classes.
• Use no more than 9-12 funds (studies show having more funds can lead to more investment mistakes).
• Consider having participants select between pre-mixed model portfolios instead of individual mutual funds.
• To the extent you provide investment education, focus on answering the basic questions: How to enroll in the plan?, How much to save? and Where to invest?
• Provide employees easy to use savings guidelines when they enroll in the plan (try the FPA Journal – National Savings Rate Guidelines for Individuals).
• Periodically review participant asset allocation, individual investment performance, and retirement readiness. You can’t manage what you don’t measure.

Kevin Boercker is a credentialed member of the American Society of Pension Professionals and Actuaries (ASPPA) and holds the Qualified Pension Administrator (QPA) designation. Prior to joining Spectrum, Boercker graduated with Phi Beta Kappa Honors from Washington University in Saint Louis with a bachelor’s degree in Applied Mathematics.

I have heard a lot of talk about how grumpy people seem to be at work this holiday season.  I do not necessarily think that is an unusual observation.  Each year, the day after Thanksgiving begins an influx of stress as we enter the holiday season, regardless of what you celebrate.  Gifts to buy, lines to wait in, food to make, parties to attend and relatives to avoid…on top of all of the end of the year deadlines to meet at work.  Think Clark Griswold in National Lampoon’s Christmas Vacation.

The complaints that I have heard most recently relate to regulations that are communicated within organizations around the holidays regarding “proper” conduct.  Most often the regulations include comments about holiday décor, inter-office parties, gift exchanges, etc.  Rightfully so, there is a big focus on diversity.  In my opinion I believe the grumpiness may be a reaction to how the official “regulations” are communicated within an organization rather than that they have been developed.

I believe most people understand the importance of respecting diversity during this time of year.  However, if the regulations on “proper” conduct are communicated in a negative manner or in response to someone being offended then there is a guarantee that they will ruffle some feathers. 

I recently talked with a colleague who works in the public sector about a specific regulation that was released just as holiday decorations were being hung throughout the office.  Depending on how much time an individual spends with the public (employees), the individual is held to different standards than all others.  The idea seems to stem from the fact that due to the high degree of public relations involved with a position the individual is responsible for ensuring that any holiday decorations within their personal office do not reference a specific religious holiday.  In some cases I have even heard of not referencing any specific holiday in general, non-religious Christmas for example.  In this case hanging up a wreath or snow flakes is acceptable.  A tree however, not so much.

I understand people have varying religious belief and that we should be respectful in these types of situations.  Nevertheless, it bugs me when organizations get extremely “nit picky” when it comes to the holidays.  I am not a religious person but I have been offended in years past by the way organizations have dealt with the holidays.  This is supposed to be a joyous time for all – not a reminder that we are just cogs in a machine.

What do you think?  How does your organization handle the holidays?  Are they flexible or do they follow strict protocol?