"Employers should be mindful of sleepwalking into equal pay inequity"

The counteroffer culture is shutting the gate after the horse has bolted. It’s a short-term fix that can lead to employees questioning why their employers undervalued their contribution in the first place, causing resentment. Employers should act before employees look elsewhere and understand how their pay compares to the external market. Likewise, employers should be mindful of sleepwalking into equal pay inequity, as counteroffers upset the internal pay consistency.

The counteroffer is nothing remotely new. As hiring and employee turnover increased rapidly after the pandemic, counteroffers also increased, often putting pressure on internal pay structures. As hiring has cooled, so new, more expensive employees will be at the top of the list for layoffs and internal pay equity will revert to normalised levels. There is no legal requirement for employers to pay the same rate to employees in response to market demands and as long as they are not discriminating based on protected characteristics there ought not to be any increase in pay claims.

Counteroffers are a result of not managing performance adequately. If performance reviews are consistent and measured in line with business goals, organisations will know that they are getting value from the employee and therefore can pay them accordingly. Companies need to research local market value for salaries and if an employee is contributing above and beyond then pay them higher than the market rate accordingly: no counteroffer will be required then. It also helps with equal pay claims, too, as employees can see exactly what's expected of them, and how to go about improving in line with other employees before even requesting a salary increase. If an underperforming employee then resigns, the employer knows that for their organisation they aren't contributing enough to justify a rise therefore no counteroffer is needed in this instance either. To reduce counteroffers, get better managers or train your current ones to performance manage effectively and positively.

The fact that employers expect to be making more counteroffers than previously suggests that they’re aware that they’re paying below market rate and intend to continue doing so. This will erode employees’ trust. After all, why accept a counteroffer from an employer who didn’t want to pay you fairly until they were caught out? With salary less of a taboo than it used to be, employers can expect salaries to be discussed more openly and disparities to be noticed and disputed, leading to increased employee dissatisfaction and resentment, leading to interviews with employers that are willing to pay fairly, leading to more counteroffers — and so the cycle continues. The only way to break the cycle is to show employees they’re valued by paying fairly and competitively in the first place.

It’s highly likely that the counteroffer culture is here to stay, at least as long as the talent market remains as tight as it is. Often, employees looking to move only do so to deal with the cost-of-living crisis. Even if they have pay rise conversations, many struggling businesses aren’t budging on salary until they are presented with evidence of a solid offer elsewhere, and it is often too late. Companies that have managed to put off salary increases for the past three years are now noticing the impact and are starting to experience the downsides of ignoring regular salary reviews. The past few years have distorted the market so much that employers can no longer assume that their competitors pay their employees at similar rates. Much like internal salaries, there’s considerable inconsistency in pay externally and job ads, whilst on the positive are mostly now showing salaries, vary considerably from employer to employer.