It's great that this employee has been transparent about the fact another company wants him. The problem is that this employee is ambivalent about his connection to your Company. Really, under 100 employees at least, this is unacceptable.

I would first reflect on why you think he's looking elsewhere. Then, I'd ask him that, admitting that you have failed to create an environment in which he has stayed engaged and motivated on what he's working on. If his answers seem reasonable and you can commit to making the changes necessary, then you won't need an employment contract, he'll stay on his own desire, because you listened to him and improved his situation.

If his requests seem unreasonable or you know you won't be able to make those changes, fire him *today.* This situation can contaminate your entire company quickly. Yes, swapping someone out will always be a bit of a setback, but you want *everyone* on your team, feeling motivated and excited by what they're doing. It sounds like you're making your decision out of fear (having to find and hire another engineer) versus what's best for the Company, long term. Happy to talk to you in a call. Problems like this are within the sweet spot of my skills and passion.

You're focused on the stick. What's the carrot?

This guy is giving you a great opportunity to figure out what his job lacks for him. And, perhaps, what issues other people might have.

It could be that it's time for him to move on. Sometimes we all want a change of scenery, and your company may be too small to provide that for him. Or it could be that you kinda want him to go anyhow. In either of those cases, in your shoes I'd give him a firm date at which he is leaving. Whether or not he has his next job lined up by then is not your problem.

But if you want him to stay, then I would work hard to make your company a place he's excited to come to every day. He may not really know why he wants to leave; we developers are not generally very introspective. That means you may have to spend a fair bit of time with him figuring it out. But if you can come up with some options, then I'd offer those as the reason for staying, and forget entirely trying to find a stick.

I'll note that studies show that surveys of managers and developers show different motivators and priorities when choosing jobs, so the things that appeal to you may not work for him. You may need to check with other developers for ideas. And I'd also suggest that your joint reluctance to have him starting anything serious is a sign that you could improve your process by reducing grain size and shifting responsibility from individuals to teams. That will help you not just in this case, but with the engineers who aren't so open about their plans to leave.

A few key things to consider to help the thought process (since the answers aren’t always obvious):

1. Locking him in: The approach of thinking about how to ‘lock him in’ is not a great one. It is understandable that you want him to feel rooted in the position, but the best way to do this is through positive, not negative, incentives. A person’s best work is driven by opportunity, not obligation. While it may be true that this engineer is talented, you will only scrape the surface of that human capital if he isn’t properly motivated.

2. Find the “Why”: The only question that is important right now is “Why is he attracted to this other position?”. Figure out the why, to Tom’s point earlier, and you will know whether you can provide that for him. Early in one company we had a lack of structure that was challenging for some new employees, so we had to have an open discussion about addressing those concerns and also setting expectations. You have to know the motivations to know what your options are (the tools you have to react).

3. Make the Call: You can’t wait for him to decide here - his indecisiveness has had an opportunity cost within your business, has expended your time and had an impact on the rest of your team. Knowing when to fire someone, especially if it is one of the first times you’ve done it, can be frustratingly debilitating because you do truly know what must be done but the action is particularly unpleasant. Mark Suster has a great post on this that helped me early on: http://www.bothsidesofthetable.com/2011/05/26/startup-mantra-hire-fast-fire-fast/

I know this can be tough so here is a link for a free call - happy to chat for a few minutes and walk through it: https://clarity.fm/bobgreenlees1/water8790

In most cases, this means your employee is already gone. I've been the guy in many situations who "saved" an employee who was leaving. Whether that required offering a non-scheduled pay raise or bonus or not, they usually left within 6 months. When an employee tells you this they're either trying to scare you into giving them something or want to leave.

Once the conversation starts, they are putting themselves in a pickle regarding the loyalty to their current employer, and most likely are building some loyalty to the new employer.

Let's say they stay, or are pondering the decision for a long time. You as the employer will never trust them as much as before and will feel like you were manipulated into talking them into staying. And they will feel a bit strange, kind of like telling a significant other that you're thinking about leaving.

And what happens if they stay and this comes up again in 6 months? We know the answer to that.

Are you underpaying them? It still probably doesn't matter, too late to fix that now. Also, both sides will have a delayed reaction, thinking everything is O.K. at first then growing their discomfort and/or resentment.

Just the fact that you're posting this question means you're likely frustrated.

You can't force them to stick with a decision, most employment is at will. What you can do is give them incentive. Where this has worked best for me is when we work together to sincerely analyze the employees strengths, weaknesses, desires to maybe restructure their job in several small ways. It's not always the money.

Contact me if you'd like to discuss more or if I can help you with this.

Tom Nora

In these types of situations I find that people are either dissatisfied with their job or they are simply bored or unchallenged. Either way it would be wise as the other folks also shared with you - to find out really what is going on. Otherwise you are in the dark and have no strategy!

If this person was not out looking for a job and the other company found him and made him an offer - it obviously got him thinking about what his current job is lacking - so why don't you just ask him - what IS the job lacking?

But in general - such a person has already left and has no real loyalty to your organization. And because of that, I usually prefer that person leaves. To me it's kind of like trying to stay in a relationship that really needs to break up and you're only hanging on because it's convenient to have someone to sleep with at night and go out to dinner with and you're too lazy to go through the dating process all over again. :)

I always hate to chime in where I think there have been several quality answers but I think one thing everyone is missing here is that the main issue you are facing is communication based. The employee was fine communicating a threat to you but since hasn't proactively worked with you to create a directional movement and stability, causing you to feel held hostage. As a leader you have a few things to think about. The first one is that no matter how great of an engineer this employee is, if they can't communicate, long term employee retention almost has no chance.

If the employee is trying to leverage better offers from you, they are going to do that in the future proactively if you easily cave to it.

The best thing you can do is become a peer to the employee to try to create open communication and express your concerns. Based on the timeline there is a good chance the other offer fell through and the employee feels stupid but is still looking.

Once you open up communication by explaining to the employee that your goal is to better understand their needs, try to get feedback on the following questions:
What was most attractive about the offer you received? (What is motivating the move)
Can you provide me a copy of the offer so we can refine our compensation or career path strategy with you?
If you are unsuccessful in those, a final question:
Are you truly interested in retaining with us?

If that doesn't move the situation along, I would start hiring to replace ASAP and TERMINATE the employee. You can't be held hostage by someone who isn't even willing to communicate with you.

Show him/her the growth path possibilities in your organisation as in fortune 500 companies climbing up the ladder is difficult