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Economic Downturn Led to Smaller Promotion-Linked Raises
 

By Stephen Miller  1/14/2011
 

With underfunded salary budgets in the wake of the 2008-09 recession and the subsequent sluggish recovery, a promotion might have seemed the only way employees could earn substantial pay raises. Yet even those opportunities were fewer and smaller, according to WorldatWork's Promotional Guidelines Survey report. The survey, fielded Sept. 15 to Oct. 1, 2010, among HR compensation and benefits professionals at mostly large U.S. organizations, found that an average of 7 percent of the employee population at these firms received promotions in 2010, down from 8.1 percent in a typical year.

In addition, the average size of promotion-linked salary increases declined, although one employee group felt the pinch a bit more. While all employee groups—nonexempt, exempt and officers/executives—saw declines in their average salary increases following promotions, officers/executives saw the biggest decline from an average promotion-linked raise of 11.4 percent in 2005 down to an average 9.5 percent raise in 2010.

Determining Rate of Salary Increase After a Promotion
The most influential factors in determining the amount of promotion-linked salary raises were:

Pay range of the new position.

66% of respondents

Rates paid to other employees similarly situated within the organization.

60%

External pay data, if available.

36%

Qualifications of the individual, compared to the qualifications of other employees in the same job within the organization.

30%

Performance level of the individual being promoted.

29%

A fixed percentage increase for most promotional increases.

21%

Number of pay grades between the old position and the new position.

19%

Whether the promotion involves a change from nonexempt to exempt classification.

8%

Source: WorldatWork.

“A perceived lack of opportunity for career advancement and promotion can be demoralizing, especially to top performers,” said Kerry Chou, a senior practice leader with WorldatWork. “Our study shows that organizations continue to plan for promotions, and many even proactively budget for them separately from other pay increase budgets. Organizations ought to communicate and raise the visibility of promotions as one of the key elements of their total rewards packages."

Impact of Promotions on Merit Increases and Variable Pay

Once employees were promoted, the most common practice was to allow them to participate in the nearest upcoming merit increase.

Managing Merit Increases for Promoted Employees

Promoted employees are eligible for nearest merit increase.

46% of respondents

Merit increase is included in promotional increase.

17%

Promoted employees are eligible for a prorated merit increase.

16%

Promoted employees are ineligible for a merit increase until next cycle.

7%

Other.

15%

Source: WorldatWork.

Regarding participation in incentive plans following a promotion, payouts were calculated based on:

A proration of the old and new pay rates (43 percent of respondents).

• The new pay and bonus rate (29 percent).

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

2011 Base Salary Increases See Modest Rise, SHRM Online Compensation Discipline, January 2011

2011 Compensation Budgets Stabilizing, SHRM Online Compensation Discipline, December 2010

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