The wrong way to leverage a counter offer

There are many ways to negotiate an offer when in final stages with an employer.  Some tactics are time tested and work well, while others are shots in the dark and can become epic fails quickly.  As a candidate you certainly want to watch out for your best interests.  You have to realize at the same time, however, that the employer is going to be doing the same thing.  The happy middle ground is usually where most deals get done.

Recently we had a candidate try to leverage a pending offer from another employer with his current employer.  It is a long story what happened from there, but timing was not aligned well and it got complicated quickly.  There are three basic assumptions that were made that were problematic:

1)  Not knowing market value for your position.  This is similar to thinking your house or car is worth more than it actually is when you try to sell either.  As a seller you always want more and as a buyer you always want less.  Even if comps in an adjacent neighborhood don't support your desires on a home price, many sellers will still act irrationally and feel like their home is worth more in their minds than any buyer or real estate agent.  The problem is that you're trying to balance fact with emotion.  The same can happen when trying to leverage a counter offer.  If you think you are currently underpaid and a position you are interviewing for has a salary range 20-30% higher than your current salary, that does not mean you'll automatically qualify for the high end of the range.  Plus if you come it busting out the high end, there will be no room for growth in the future.

2)  Not defining your motivation for leaving.  If you are only looking for a new position because of money, that can become a slippery slope.  Even more dangerous is making a job search or interview process about the money when it isn't really about the money.  You may be happy in a position, feel like you're not being compensated fairly and enter into a job search to see if more money is out there.  The problem is that if you can procure the money, but don't want the position, that isn't going to automatically make your current employer want to pay you more.  In fact it could backfire and they could question why you were looking to leave in the first place.

3)  Not seeing the bigger picture.  Keep in mind that if you attempt to leverage a counter offer and it doesn't work, you may alienate yourself from both parties.  If you have a third party search firm or consultant involved it can go even deeper.  You don't want to bite the hand that feeds you as the world is such a small place any more.  The reward may seem worth the risk at the time, but you really have to balance everything between fact and emotion carefully.

The bottom line is that there is nothing wrong with being unhappy or feeling underpaid.  Many people are trapped in conditions that are unfavorable, do nothing about it, and are unhappy for a long time.  Just keep in mind that as you enter into a job search that you may have to make a decision on an offer or counter offer and you are bound to disappoint someone.  The fewer people you disappoint the better for your long term career options.

Have you ever seen a counter offer situation go badly?  If so, how was it handled?