CIPD urges employers to look at employment offer as a whole to retain talent, as its new research finds employers continue to face pressure to pay higher wages to compete in the labour market

As part of efforts to keep key staff, 40% of UK employers have made a counteroffer in the past 12 months.

To tempt workers to stay, 38% of employers who made offers matched the salary of the new job offer and 40% offered even higher sums. Counteroffers are most prevalent in London (58% of London-based employers in the last 12 months), making it the ‘counteroffer capital’ of the UK.

These are the key findings of the latest Labour Market Outlook from the CIPD, a quarterly survey of 2,000 UK employers hiring, pay and redundancy intentions. It shows that employers continue to face pressure to pay higher wages to compete in the labour market. Employers expect basic pay increases to remain at 5% for the next 12 months, unchanged from the last two quarters, and counteroffers are regularly being made to keep key staff.

The use of counteroffers is projected to increase as recruitment and retention challenges persist. A quarter (25%) of employers who have used them previously expect to offer even more counteroffers in the next 12 months than in the past year, while only 8% expect to offer fewer.

However, the CIPD’s research found that just one in five (22%) employers that make counteroffers have a formal policy on them, for example explaining in which circumstances they can be made. The CIPD is warning that a lack of a formal process could result in issues relating to pay gaps, pay fairness across similar roles, and the organisation's overall approach to reward. Therefore, the professional body for HR and people development is urging employers to have a clear process for considering counteroffers, as part of a fair and transparent reward and recognition strategy that looks beyond pay. Such strategies should consider the broader employer offering, for example, flexible working and other benefits, training and development and future progression opportunities.

Of those employers that are using counteroffers as part of their retention strategy, more than half (51%) have increased the level of counteroffers they have given over the last 12 months. Nearly half (45%) of employers believe counteroffers are effective in retaining employees for 12 months or more, but three in ten (29%) employers think they are ineffective. This suggests that for some employers, counteroffers may only be valuable as a short-term option and that employees will move if wider aspects of the job, such as workload, autonomy and environment, don’t meet their expectations.

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.

“While pay is often the most typical focus of a counteroffer, there are other things employers should consider in making roles more attractive, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions.”

Other key findings from the latest CIPD Labour Market Outlook include: 

On pay 

Public sector employer pay expectations have risen from 3.3% to 4% this quarter, which is the highest reported since the CIPD’s time series began in 2012.
A key driver for wage increases for many employers was the increase to the National Minimum Wage and National Living Wage, with one in five (18%) employers believing it has impacted their wage bill to a large extent. This figure rises to 43% among employers in hospitality.

On hard-to-fill vacancies 

44% of employers have hard-to-fill vacancies, rising to half (50%) of public sector employers.
To address this, in the last six months, 44% of employees have raised wages and 35% have increased the duties of existing staff.

On hiring 

Almost three-quarters (73%) of employers plan to recruit in the next three months, with recruitment intentions remaining highest in the public sector (83%), followed by the voluntary sector (76%) and the private sector (70%).

Overall, 19% of employers are planning to make redundancies in the three months to September 2023.