why don’t more companies try to retain key employees with raises?

A reader writes:

My brother-in-law works for a company of about 600, with branches of 80 or so in several cities across North America. His department had three employees who served their branch in an HR-type capacity. One employee moved, leaving only him and his manager to handle their caseload. This was okay. Then the manager left.

The branch managers called my brother-in-law in and told him that he was now the acting manager but there would be no pay raise “at this time” but they appreciated his work and knew he could handle this opportunity. While the caseload on him went up, he was able to shift work to other branches so there were no late nights or long hours. Still, he was now in charge of a large branch’s department.

He immediately started looking at other employment opportunities and after four months has secured a better position elsewhere.

Had they offered up an initial pay bump of $10,000 or so, I wouldn’t even be writing this letter. But why do companies not think to raise the salaries of employees under these sorts of conditions? (Even good workplaces?)

Now, old company has to:
• Go through a hiring process (cost #1)
• Bring in a temporary manager from another branch (cost #2)
• Train someone who is new to the organization (cost #3)
• There’s likely a hidden cost I haven’t thought of

Meanwhile they lost someone who was considered strong enough to become head of their department with a title bump but not strong enough to get a pay bump.

I continue to be perplexed.

They underestimate people’s willingness to leave. They know people can leave; they just don’t think the person will go through the hassle of doing it.

This is obviously absurd; people leave jobs all the time. But employers often overestimate their own power in these situations.

The other thing that’s often at play is that the employer doesn’t really care that much if the person does leave. They figure if that happens, they’ll hire someone new — which they will. And yes, the costs involved in doing that (all the ones you laid out, plus the opportunity costs there are from having someone new who will take a while to master the job) usually exceed the amount of the raise they’d need to give to retain the person, so from that perspective the math doesn’t add up.

Plus, if they end up having to replace the exiting employee with an external hire, they’re probably going to have to pay the external hire more than they were paying the person who left — because a new hire coming in off the street is far less likely than an internal hire to accept “we’re hiring you for a manager job but paying you for a level below that because the money isn’t there right now.”

For what it’s worth, it’s possible that they didn’t want to hire your brother-in-law into the manager job permanently and just intended for him to be the interim fill-in while they searched for the permanent hire (which is why he was just acting manager). If that’s the case, well, they got the interim job covered at no extra cost to themselves for a while, and they might not care that much that now there’s turnover in his initial role.

Mostly, though, it’s that they figure they can exploit people and so they do.

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