How Should We Handle an Employee's Salary Negotiation with a Competing Offer?

Seeking Advice on Employee Salary Negotiation

I work in a small IT firm consisting of 4 employees. Due to the limitation of the small structure, I work in multiple roles such as branch head, HR, admin, etc. I would like to seek expert advice on the following situation that we are facing:

Junior pay scale employee, X, joined the firm 6 months ago. At the time of joining, he demanded a salary of 1.8L CTC, which he was not eligible for based on his profile quality. The company offered 1.56L CTC and assured that his salary would be revised to 1.8L after the completion of the 6-month probation period, based on his performance levels. Now, the 6 months have passed, his performance was just satisfactory, and the agreed salary revision is about to take place.

X has now presented another job offer letter from a different company, bargaining for a higher salary hike citing personal financial reasons. The offer letter shows 2.8L, which is an 80% hike from his current CTC. X is an average employee, and due to the small team size, the company needs to carefully consider between resignation or a hike.

Questions and Considerations

- Should we negotiate for further hikes?
- The day before, X saw his colleague's (friend's) payslip, which may have influenced this bargaining.
- We do not have a binding policy in the company (considering implementing one).
- If we accept X's resignation, should I mention this scenario during his background verification process with the other company's HR/consultant?

Eagerly waiting to hear from experts.

Regards,
Dazz

Considerations for Employee Retention and Salary Negotiation

After six months, you are not satisfied with the performance of the employee. You are not inclined to give a salary hike. Yet if he comes up with an offer letter with a salary of 2.8L, then it might be better to let him go. Let him avail himself of his career opportunity. For you, it would be good riddance!

If you relax your standards and negotiate with him, he could develop the habit of bargaining. What if he comes up with yet another offer letter with a still higher salary after one year? Will you raise the salary once again to retain him?

Now, if you raise his salary to retain him, it could send the wrong message to other employees. What if they also start bargaining? You could be in bargaining/negotiating mode forever!

By the way, did you verify the authenticity of the offer letter? Is it genuine or a concocted one? If the latter, then possibly he may come up with his request to withdraw the letter of resignation. At that time, to retain him, make a separate agreement to retain his education certificates. Let him sign the bond for two years.

Thanks,

Dinesh Divekar

Let the gentleman go. After all, his work is barely okay, and when employees start this kind of bargaining, it will create a bad precedent if other employees start copying him. Have a reasonably clear pay scale structure and employ as per that. I would not speak negatively about him to a new employer in case of enquiry/verification. I would give a neutral review of his work. Once he is out of my firm, I would not like to harm his growth.

Unless the skills are extraordinary and replacement is extremely difficult, one should not try to retain such an employee who is bargaining through an offer letter from another employer. This can trap you in a vicious cycle and will give the wrong impression to all employees.

Salary Evaluation for IT Firm Employees

Please check if, for an IT firm, an annual package of 1.8L is good enough as per "market rates." As far as I know, the IT sector has always offered higher salaries than other office/engineering staff positions.

If Mr. X has seen his colleague's salary slip and there is an identifiable difference, then it is obvious that he aspires for the same. If you let the person go, there will also be unrest among other employees seeking better opportunities. This is the main reason retention policies try to average out salaries with current market scenarios.

If the person is getting an 80% hike and you are not able to give it, then I do not think the person will stay anyway. Keep negotiations to a minimum. Just give your offer and ask him to decide. If he decides to leave, wish him 'best of luck.'

Mr. X’s new employer should already know his current salary. So, your factual and frank response to the verification check should ideally not harm his prospects in the new job. Just try to remain unbiased and stick to facts.

Bonds are most effective, but never a very 'ethical' way of retention. Also, retaining his education certificates (actually any government-issued documents) is illegal.

Do a review of why the other 3 employees are still staying with you. This will give you good pointers on which kind of replacement you want to recruit in place of Mr. X, who will not leave the job soon. There are generally many opportunities in the IT industry around. Employees will change jobs for sure.

As a small firm, you should focus on hiring experienced and 'settled' candidates, rather than ambitious young people (even at a little higher cost). You can focus on a good work environment and steady assured growth to retain these employees rather than running in the rat race of hike negotiations and bonded employment.

Best Regards,
Amod Bobade.