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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.

Honestly, I’m not sure if I remember what my life was like before my iPhone or if I even want to.  I have access to maps, internet search engines, social networks, and a variety of applications to fulfill almost every want, need, and desire.  A recent study by Ball State and the Institute for Mobile Media Research found that college students are the fastest growing smart phone market segment.  Not surprisingly students are using these powerful mini-computers for both their personal and academic needs.  While I’m far from being a college student, these smart phones like the iPhone have made connecting, managing work and family, and networking even easier.

The ability of smartphones to link users to popular social networking sites may be another major reason college students are buying the devices in large numbers.   The survey found that about 65 percent of respondents use their smartphones to access social networking sites.  Oddly enough, the fastest growing age segment on Facebook is not college students at all. InsideFaceBook.com reports that while Facebook is still the fastest growing social media platform in the United States, almost half (50%) of U.S. Facebook users are older than 35, and nearly one-fifth top 45.

So when and how are these experienced business professionals accessing these sites?  Well, it is certainly not from their work PC.  A recent survey commissioned by Robert Half found that over fifty percent of workplaces in the United States block these social networking websites while another 19% only permit their employees to visit social networking sites like Twitter, Facebook, Ning sites, and Myspace but only for business purposes.  And with more than 3 out of 4 people owning cell phones, chances are these experienced professionals are surfing their favorite social network and catching up but not from their work computer.  Your star professionals are accessing blocked websites from their smartphone computer without restriction or monitoring.

Lost Productivity. Decision makers develop a social media and internet policy and disallow workers from viewing risky content and non-business related social media platforms.  Employees work hard to stay informed on the dos and don’ts around the office and use smartphones as a way to work around.  Nucleus Research reports that banning Facebook costs businesses 1.5% of lost productivity in the workplace.  Don’t even get me started on the number of hours wasted by decision makers and HR professionals who sit in committee meetings discussing what sites to include, not to include, and verbiage of their internet and social media policy.

Proxies. These are sneaky little ways to get around blocked websites.  Google boasts almost 7 million websites that list the word proxy.  For as little as $9.95 a month (and sometimes even free), job seekers can purchase proxy access to access company restricted websites through a proxy website.  Don’t believe me, look at the Google search results for yourself.  Not sure if your IT guy is up to snuff?  Ask him his opinions about proxies.

A Relevant Business Need. If more than half of the U.S. users on Facebook are of the age 35 or older, chances are these professionals are using the site for legitimate business purposes.  I often use my Facebook network as a way to give me a quick answer to a question almost like my online Phone-a-Friend option for everything from sales leads, to phone numbers, to the latest basketball scores because my morale is directly tied to my productivity in the office.

Stay Current. With market trends, business news, and just information in general.  Several years ago I learned about a large layoff that was occurring via an email before the layoff was announced to the public.  This email was sent to my personal email account which I had access to on my smart phone.  My team and I were able to react quickly and before our competition.  Situations like these have happened more than once.  Do you want your team to miss out on a once in a lifetime opportunity for your business?