In a bid to retain their most valuable employees and navigate the challenges of a competitive labour market, 40 percent of UK employers have resorted to making counteroffers over the past year.

These findings have been unveiled in the latest Labor Market Outlook from the Chartered Institute of Personnel and Development (CIPD), a comprehensive quarterly survey encompassing 2,000 UK employers focusing on hiring trends, pay structures, and redundancy strategies.

A significant proportion of employers, 38 percent, chose to match the salary offered by a prospective new job, while an even more substantial 40 percent opted to surpass this figure, demonstrating the lengths to which businesses are willing to go to retain their critical workforce.

Interestingly, the prevalence of counteroffers was most pronounced in the bustling city of London, where 58 percent of employers engaged in this practice, thus crowning the capital as the “counteroffer capital” of the UK.

The survey underscores the persistent pressure employers face to enhance wages in order to remain competitive in a cutthroat labour market. The study anticipates that the utilisation of counteroffers will escalate as businesses continue to grapple with recruitment and retention challenges. Encouragingly, a quarter of employers who have previously deployed counteroffers anticipate an even more frequent use of this strategy in the coming year, with a mere 8 percent expecting to decrease their reliance on it.

The lack of formal policies

However, a notable aspect of the findings pertains to the lack of formal policies governing the use of counteroffers. Astonishingly, just 22 percent of employers making counteroffers possess a structured policy outlining the circumstances under which they can be extended. The CIPD highlights that this absence of a clear framework could potentially result in issues surrounding pay inequities, fairness across similar roles, and an overall lack of cohesion in the organisation’s reward system.

Consequently, the CIPD is advocating for a defined and transparent process for considering counteroffers, emphasising the importance of a holistic reward and recognition strategy encompassing more than just monetary compensation. Factors such as flexible working arrangements, supplementary benefits, professional development opportunities, and avenues for future career growth should all be integrated into such strategies.

Of those organisations employing counteroffers as part of their staff retention approach, more than half (51%) reported an increase in the frequency of these offers over the last year. While 45 percent of employers view counteroffers as effective in retaining employees for at least a year, 29 percent perceive them as ineffective. This raises the possibility that, for some employers, counteroffers might only serve as a short-term solution, and other aspects of the work environment, such as workload, autonomy, and overall job satisfaction, are more crucial in employee retention decisions.

Matching people and jobs

Commenting on the findings, Jon Boys, the senior labour market economist for the CIPD, remarked, “The fact that counteroffers are so widespread suggests they do have a role in matching people and jobs. Employers need to approach them with caution though and have clear internal processes for when these situations arise. Counteroffers may help to retain key staff and avoid knowledge drains and the cost to hire new people, but this must be weighed up against other considerations.”

In addition to insights into counteroffers, the latest CIPD Labour Market Outlook divulged other key findings. Public sector employer pay expectations saw a rise from 3.3 percent to 4 percent, the highest reported figure since the CIPD began tracking this data in 2012. This increase was attributed in part to changes in the National Minimum Wage and National Living Wage, with 18 percent of employers acknowledging their significant impact on wage bills, a figure that climbs to 43 percent in the hospitality sector.

Additionally, 44 percent of employers reported experiencing hard-to-fill vacancies, with public sector employers particularly affected, with half facing this challenge. To address this, 44 percent of companies increased wages, and 35 percent expanded the responsibilities of existing staff over the past six months.

What about recruitment?

In terms of recruitment, a significant 73 percent of employers have plans to hire in the next three months, with the public sector leading this trend at 83 percent, followed by the voluntary sector at 76 percent, and the private sector at 70 percent. However, there remains a downside, with 19 percent of employers indicating plans to make redundancies in the period leading up to September 2023.

The CIPD’s comprehensive survey shines a light on the multifaceted strategies employers are deploying to attract and retain talent in an increasingly competitive labour landscape, underlining the importance of flexible and holistic approaches to workforce management.

 

 

 

 

Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.