One of your company’s best employees just walked into his manager’s office and announced that he has accepted an external offer. Two minutes later, the manager is in your office… what can HR do to change his mind? Well, you can always offer him more money, right?

Counteroffers can be an effective tool under the right circumstances, but they should not be your go-to strategy when a valued employee resigns. People leave companies for a variety of reason, with money being just one of them. Consider the following scenarios:

The employee is unhappy with his job and/or boss. A 2009 survey conducted by Robert Half International found that over 80% of employees quit their job due to unhappiness with management, limited opportunities for advancement or lack of recognition. Another survey by the Saratoga Institute in California, considered by many to be the world leader in third-party exit interviewing and employee-commitment surveying, found that the root cause in 88% of voluntary terminations was something other than money. If an employee is resigning because he is bored with his job or unhappy with his manager, offering more money is a very shortsighted solution. Sure, if the counteroffer is big enough, the employee may stick around for a few months. But eventually the thrill of the salary increase will wear off and all of the negative feelings will return. And when they do, he’ll start looking for another job again.

The employee has landed a great opportunity elsewhere. In a world with LinkedIn and Facebook, it’s getting easier for other companies to figure out who the superstars are at yours. So don’t be surprised when one of your company’s best employees tells you that he is leaving to take a much bigger job with a competitor. From a compensation perspective, you don’t want to try to match this offer unless a comparable position happens to be available internally. If you do counteroffer and keep the employee in his current role, you’ll likely have significant internal equity issues. My advice – wish the employee well, keep in touch and try to lure him back when the right opportunity becomes available.

The employee is happy with his job and/or boss but wants to make more money. Let’s face it – some of us just need to earn more. Maybe the employee’s spouse was laid off or he’s trying to save up to buy a house. When a headhunter calls with a company willing to pay 15% more, he listens despite being happy where he is. This is a situation where a counteroffer could make sense. But remember, you don’t have to go as high as a 15% increase. Talk about other elements of the employee’s total rewards package like a vested pension or 401(k) match, unvested equity awards, etc. Discuss what it is required for the employee to take the next step on his career path in order to increase his earning potential at your company. Remind the employee of how much time it takes to build a reputation as a superstar at a new company. In short, make certain that the employee knows all of the advantages to staying with your company.

According to Leigh Branham’s The 7 Hidden Reasons Employees Leave: How to Recognize the Subtle Signs and Act Before It’s Too Late, 89% of managers believe that employees leave because of pay.  We now know that the empirical data does not support this belief. But it’s certainly easier to blame compensation than do some real self-reflection, isn’t it? When an employee resigns, take a few minutes to understand the root cause before deciding if a counteroffer is productive. And remember — the best strategy for retaining top talent is for your managers to treat their employees well, help them to advance and recognize their contributions fairly. If managers are trained to do this, you won’t need to stand your ground against counteroffers very often.

Judy L. Freides is the resident blogger for CompDevil.

When a company has 10 employees, it’s relatively easy to manage a merit increase process tied to hire date anniversaries. It’s also intuitive – employees get their annual salary increase exactly one year after they join the company. But there are some compelling reasons why larger companies should consider having a common date for all employees.

Common goalsetting and performance measurement periods: Companies set their goals in alignment with their fiscal year. Leaders then cascade these goals down to lower levels of the organization, ultimately resulting in the determination of individual goals. Similarly, at the end of the year, companies assess their results and managers evaluate their employees’ results. If the performance period for the employee and company are not the same, this annual performance management process is fundamentally out of sync.

Holistic pay-for-performance discussions: If a company has a pay-for-performance philosophy, it’s important that employees be able to easily connect the dots between what they deliver and how they are paid. But even if the company gives merit increases on employees’ anniversaries, bonuses will likely still correspond with year-end. By also giving merit increases at year-end, a manager can have a holistic discussion about how the employee’s performance impacted all elements of pay. Having a separate merit increase conversation later in the year based on a different performance period may feel quite disjointed.

Simpler administration: If all merit increase planning is done at the same time and in the same way, the company can implement a common global process rather than constantly dealing with a one-off transactions throughout the year. This makes administration much simpler and less time-consuming for everyone involved.

Common business conditions: By planning and implementing merit increases for all employees at the same time, the same business and economic conditions exist and those conditions impact employees in the same way. For example, a company may be going strong in the first half of the year but then business may soften in the second half. As a result, employees with an anniversary in the second half of the year might get smaller increases than their counterparts who received increases earlier. This situation is avoided by having a common date.

Company-wide calibration: Another benefit of planning merit increases for all employees at once is that it allows leaders to perform company-wide calibration. Managers do not have visibility to salary decisions for employees who don’t report to them, so there is no way for them to compare their direct reports’ pay and performance to others in the organization. A common increase date enables top leaders to compare employees to their colleagues throughout the company in order to ensure internal equity.

Simpler reporting and governance: A common increase date makes reporting and governance simpler. Companies can easily model the financial cost of merit increases for the year. They can ensure that there is adequate individual performance differentiation. And they can manage increase budgets across groups of employees, business units and geographies. These analyses enable the company to ensure that the money being spent on increases is being spent wisely.

Switching from an anniversary date to a common date approach can be a bit tricky, but I believe that it’s worth it. If you’re thinking about making a change and have questions, be sure to ask an expert!

Judy L. Freides is the resident blogger for CompDevil.

Compensation professionals spend a lot of time creating and maintaining their company’s salary structure. But to preserve the integrity of the structure, they must also enforce it. To this end, it is a common practice in the U.S. to give lump sum merit increases to employees who are at or above the top of their salary range.

The term lump sum merit increase is a misnomer — it really isn’t a salary increase at all. Instead, the employee receives a one-time payment equal to the increase amount he would have received had he not been at the top of the range. In this way, the employee is rewarded for his performance during the year without violating the maximum of the salary range.

From an employee perspective, the good news is that the “increase” is paid upfront rather than being paid in increments throughout the year. The bad news is that “increase” typically doesn’t flow through to bonus and other benefits because the employee’s base salary has not changed. And, of course, the “increase” doesn’t carry forward into the next year.

In concept, this seems like a very logical approach. But let’s look at some common reasons why an employee might be at the top of his salary range and the corresponding message that a lump sum merit might send.

Superstar employee. In a pay-for-performance company, a consistent high performer is going to get greater-than-average merit increases. This will quickly propel him to the top of his salary range. Nevertheless, the employee may not yet be ready to move to the next level or there may not be a promotional opportunity currently available.

Message to employee: As one of the company’s best employees, you’ve generated millions of dollars in income for us. As a result, we’ve given you generous salary increases in the past. But those big increases have put you at the top of your salary range. So even though you are still doing just as great now, we won’t be increasing your salary anytime soon. Keep working those 80-hour weeks!

Long-service employee. There are jobs in which employees have no expectations of promotion. For example, an on-site nurse or a corporate jet pilot are jobs which wouldn’t have a career path within a company. Because such employees tend to stay in the same position for several years, they are likely to eventually hit the maximum of their salary range.

Message to employee: The company appreciates the loyalty you’ve shown over the years. Unfortunately, you’ve reached the top of the salary range for your job. So if you’d like your salary to grow, you’ll need to find a job somewhere else. 

Love at first sight. You’ve spent hours sifting through resumes and conducting interviews, but now you’ve finally found that perfect candidate. Maybe the candidate’s current employer pays better. Maybe the candidate is overqualified for your job. Or maybe the candidate is a really good negotiator. It doesn’t matter – you’re in love and you’ll pay whatever it takes to close the deal.

Message to employee: You’re off to a great start and we’re really excited about your career here. By the way, since the offer we made to you was too generous, don’t expect to see a salary increase anytime soon. Welcome aboard!

Relocated employee. Companies relocate their employees all the time. But what happens when an employee in a higher-cost location moves to a lower-cost location? The employee hits or exceeds the salary range maximum.

Message to employee: Thanks for uprooting your family and moving to Fargo. We know the company asked you to make this move, but there is some bad news. Although we invested over $100,000 to relocate you, we aren’t going to give be able to give you a salary increase in the foreseeable future. Enjoy the new job in North Dakota!

So what is your opinion? Are lump sum merit increases a solid compensation strategy? A necessary evil? Or a demotivating surprise for employees who are doing all the right things?

Judy L. Freides is the resident blogger for CompDevil.