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27 Feb 2008
Boom in counter-offers as banks strain to retain staff after disappointing bonus season

The number of counter-offers being made to retain staff threatening to leave City institutions, is exploding, according to international executive search consultancy, GRS. Counter-offers have more than doubled in the three months up to January. According to GRS, normally, 21% of offers are countered. But in recent months this figure has more than doubled as institutions are increasingly using them to maintain corporate morale in the face of the havoc wreaked on City firms by the credit crunch. Risk professionals in particular are benefiting, with 44% of moves being counter-offered. In light of relatively poor bonus pay outs at many investment banks this year, buybacks are becoming more commonplace as they become proportionally cheaper than they have been since 1997. Counter-offers are increasingly seen by banks as cost effective talent management tools. The cost of replacing a financial services professional can be as high as 35% of their basic salary and then there’s the hassle of hiring and training onboarders; so paying 10-12% uplift in salary (the average counter-offer increase for financial services professionals) can be regarded as pretty good value for the employer. American banks in particular are taking a lead. As European and Japanese banks adopt a laissez-faire attitude to candidates who announce they’re jumping ship, US institutions are ferociously protecting their top talent. Jim Heptinstall, Principal Consultant GRS Compliance, says “I recently lost a candidate to a buyback from his American investment bank employer. He had been on £78,000 p.a. + £24,000 bonus; we had managed to much improve on this package with a leading European investment bank, only to be countered with a £100K basic and a £60K guaranteed bonus on top. The candidate decided to stay.” Loraine Sylvester, Senior Consultant GRS Tax highlights, “It’s clearly a very marked strategy by the American investment houses particularly, to secure the services of their people through counter-offering. US banks are twice as likely to counter-offer than their European or Asia-Pac rivals.” But GRS cautions cheap counter offers are not good news for banks or for the employees who accept them. More often than not counter-offers are more trouble than they are worth - as they secure the services of people who have already decided to leave the firm. Most counter offers are not accepted, but of those that are, around 70% end up back on the market within six months. It’s not always in the employee’s long term interests either as they are often seen as less loyal by their boss. Loraine Sylvester, Senior Consultant GRS Tax said: “A counter-offer can be a short term solution to a long term problem – the equivalent of sticking a plaster on a dirty wound. Counter-offers are often made by employers who don’t understand what really motives their employees.” Buybacks are not all about money however. They can take the form of promotions, secondments to new divisions or locations, training, or amendments to any other aspect of the benefits package. And the counter-offer phenomenon looks set to continue to grow in 2008 as the largest City institutions carry on trading blows in London’s talent war. A recruitment freeze by the big4 accountancy firms in 2001 has caused a dearth of four to five year post-qualified ACAs who are ripe for risk management or tax roles. The shortage is so acute; GRS forecasts the counter-offer phenomenon will not abate for at least another two years.