Tuesday, June 24, 2008

Counter offers when leaving?

Inspired by a couple of good links, original post here with further thoughts at Ron's wisdom and Frugal Dad.

Lots of great links and all kinds of neat ideas and lists of reasons “not to accept a counter-offer”.

But I think the reason is simple.

You don’t want to work for anyone who feels that the counter-offer is a good idea.

Sure it’s an ego boost for you, but it’s really desperate management decision. Do you want to bank your future on desperate management?

The game is simple, an employee generates X revenue and the company pays that employee Y, where Y is X minus expenses and a risk-adjusted profit margin. In fact, it’s a lot like the stock market (actually, it is the stock market, but that’s a different discussion). Either way, the goal of the employee is to maximize the hourly yield for the work they’re willing to do, they want to maximize Y. The goal of the employer is to maximize profit, they want to maximize X and minimize Y.

The problem of course is risk. If you “over-minimize” Y, then you drain X (lower productivity) or you lose X all together (employee leaves). In the grand scheme, employers have been doing a lot to minimize Y: reduction in pension, reduction in health care allowances, no more 20-year gold watches or 10-year sabbaticals, etc. But many employers still insist on making some silly decisions with Y.

In Patrick’s case (the original poster), the competition was willing to pay 30% more Y. Assuming that Patrick could generate an equivalent X, the company felt that Patrick was a small enough risk to pay him 30% more.

That’s a very big difference in evaluation. That’s the same thing as me thinking a stock is fairly-priced at $100 when you think it’s fairly-priced at $130. Of course, we commonly hear about 20 & 30-somethings jumping jobs to make these types of pay raises because it's the only way to get a raise.

There are typically three reasons this happens:

  1. The company is doing poorly and cannot afford to pay the employees more. Or they’re likewise not generating money from having the employee around.
  2. The company is trying to extract as much profit as possible from the employee or using the employee’s profits to fund a different venture.
  3. The company really has no clue (typically poor management). Any/all of: they don’t know the market rates, they don’t know which employees are generating money or losing money, they don’t have a growth plan, they don’t have a succession plan, they don’t understand what the employee really wants…etc

In a case like Patrick’s I’m sensing a heavy dose of #2, with a little #3.

What I don’t understand is why they suddenly perceived me as valuable as soon as I mentioned leaving?

It’s up to management to manage and mitigate risks and they really blew this one. (And remember the profits they make are their “risk-adjusted” piece of the pie) Not only did they underestimate your value by 30%, they also underestimated the value of their counter-offer by another 10%. That they would even go back to “up the ante” again means that they were still suffering from a #2 brain fart.

So back to the original thesis. You don’t want to work for these guys.

  • If they suffer from #1, then they’re likely laying people off and even if you don’t lose your job, you won’t be getting a good pay raise.
  • If they suffer from #2 and they’re underpaying by 30% (or more), then they’re not showing a lot of foresight.
  • If they suffer from #3, then you’re resting the fate of your next raise, your next promotion and even your next paycheck on the back of someone who doesn’t have a clue.

You don’t want to be working for these guys. You want to be working for proactive managers. You want people who have vision, who can see problems before they arrive. You want people who lead, people who hire more staff before everyone gets too busy, people who give pay raises before you have to ask for them, send you to training before you need it.

So if your employer makes a counter-offer, they are not one of these people. They’re one of the hordes of reactive managers. Just because they’ve finally realized they’re behind and can afford to pay you more doesn’t mean that they’ve changed their ways and stopped being bad managers.

So don’t accept a counter-offer when resigning your job, you don’t want to work for the type of people who make counter-offers.

Of course, ymmv.