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I would not tell them you're seeking a counter offer. To maintain maximum leverage, you should make it sound like a one way street. I.e. I've ACCEPTED an offer.. I've really enjoyed working here because [insert reasons], but my pay has been tracking below market. I appreciate [things boss has done for you]... And let them respond.
This way they know comp is the main reason you're leaving and if they are willing to play ball they'll ask you, "how much?"
Thank you!
Very few times would they ask for the letter. The question is would you leave your job if they say no? They have to believe you are serious about quitting
I wouldn’t tell them right away what it would take for them to keep you. Tell them you want to stay, but at your current pay that’s not feasible and you’d like to know what they can offer to help you stay.
They might end up offering more than you had planned to ask for. If they don’t offer more, then it’s easy to counter and say “sorry, that’s not competitive. It needs to be at least $XX or I won’t have much choice.” If they refuse to give you an offer without showing the competing offer, they might quickly reevaluate that choice after you give notice and show that you’re not bluffing.
I’m coming up on this same situation, and that’s what I’m planning to do.