Four in 10 employers are having to resort to counter-offers in a bid to retain key staff, according to the CIPD.
The HR body found that London was the “counter-offer capital” of the UK, with 58% of employers feeling compelled to match salaries or go higher than a competitor in the last 12 months in order to retain an employee.
The CIPD revealed the figures as part of its quarterly Labour Market Outlook survey of 2,000 employers. On average, those polled felt that pay increases would remain at 5% for the next 12 months, unchanged from the last two quarters.
A quarter of employers that have used counter-offers previously expected to offer even more in the coming year as recruitment and retention challenges continue. More than half (51%) had increased the number of counter-offers in the last year.
Just 22% of employers who make counter-offers have a formal policy on this, however, and almost a third (29%) think they are ineffective. Forty-five percent thought they were useful for retaining employees for another 12 months.
A high proportion of employers reported hard-to-fill vacancies – 44% in the private sector, rising to 50% in the public sector.
The CIPD warned that not having a formal policy or approach on counter-offers could threaten a transparent and fair pay and reward strategy. For some employers, they may only be valuable as a short-term option as – if retention issues are not addressed – employees may still move on if expectations are not met.
Jon Boys, senior labour market economist for the CIPD, said: “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. For instance, counteroffers could exacerbate pay gaps, cause equal pay challenges, or result in a drop in employee engagement. They may also only work for the short-term.”
Boys added that organisations could consider other elements of reward than pay in making a counter-offer to employees, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions.
The LMO also revealed that, in response to skills shortages, 45% of organisations had increased wages and 35% have increased the duties of existing staff.
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Almost three-quarters (73%) of employers plan to recruit in the next three months, with recruitment intentions highest in the public sector at 83%, and the voluntary sector (76%). Just under a fifth (19%) plan to make redundancies in the three months to September 2023.
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