Promotions See Uptick, but Not Related Pay Increases

The percentage of employees receiving a promotion on an annual basis increased to 9 percent in 2014, up from 7 percent in 2010, according to a February 2015 Promotional Guidelines survey report from WorldatWork.

The survey, conducted in November and December 2014 among WorldatWork members—total rewards professionals working mostly for large North American firms—also assessed the standard pay increases that accompany promotions.

Promotional Pay Raises

The increase in the rate of employee promotions is “evidence that organizations are relaxing the purse strings for their pay budgets,” said Kerry Chou, WorldatWork senior practice leader and report author, in an e-mail to SHRM Online. But only so much.

The report found, “There has been little change … in the average amount of increase that employees are receiving” when promoted, compared with prior surveys conducted in 2010 and 2012.

In determining promotion increase amounts, the most influential factors were:

• Pay range for a new position (cited by 71 percent of respondents).

• Rates paid to other employees similarly situated within the organization (60 percent).

To define employee movement as a “promotion” entitled to a pay raise, 77 percent of organizations required higher-level responsibilities and 75 percent required an increase in pay grade, band or level.

Budgeting for Promotions

While an increasing promotion rate is good news, “the data also suggests that employee vacancies are helping employers foot the bill for these promotions,” rather than increased salary budgets, Chou noted. For instance, when asked how their organizations fund salary increases for promotions, 29 percent of respondents said promotions were funded with vacancy savings—up by 7 percentage points since 2010, when 22 percent reported funding promotions with vacancy savings.

Less than half (42 percent) of organizations now budget separately for promotions, and “the prevalence of this practice appears to be falling as more organizations are either budgeting for promotions in their merit budget or simply funding with salary or vacancy savings,” Chou noted.

However, it would be wrong to conclude that organizations that don’t budget for promotions believe that career advancement isn’t important. In fact, “it’s quite common, especially for large companies with hundreds or thousands of employees, to have enough slack in their payroll due to vacancies to cover unbudgeted promotional costs,” said Chou.

“Not having a set line-item in a manager’s budget for promotions increases the chances that a promotion that does take place is truly deserved,” he explained. “An implicit message of having a line-item in a budget is ‘it’s there for you to spend,’ and some managers may promote staff simply because their budget allows it.”

Handling Merit Increases

When promoted employees have been in their new positions for less than a year, 33 percent of organizations make them eligible for the nearest annual merit increase—down from 46 percent in 2010, the survey found. Among other current practices, organizations are:

• Varying their practice by employee or manager, or as determined on a case-by-case basis (24 percent).

• Including the next merit increase in the promotional increase (16 percent).

• Making promoted employees eligible for a prorated merit increase (9 percent).

• Requiring promoted employees to wait until the next full-year merit cycle (7 percent).

• Not offering merit increases (2 percent).

Lack of Communication

Another issue organizations continue to struggle with is communication about promotion practices. Among survey respondents:

• 63 percent do not feature or market promotion opportunities or activities as a key employee benefit when attempting to recruit new employees.

• 46 percent do not proactively share promotion guidelines or policies with employees unless asked.

• 21 percent do not share promotion guidelines or policies with employees under any circumstances.

The failure to communicate about promotions appears to be short-sighted, as more than 60 percent of respondents also believe that opportunities for promotion have a positive or extremely positive effect on employee engagement and motivation, the survey found. Moreover, the perceived effect on employee engagement increases as the amount of information shared with employees about promotions increases.

Why are so many organizations not sharing their promotion policies? “As a practical matter, many tend to tread lightly in this area simply due to the fact that only a relatively small percentage of employees actually receive a promotion on an annual basis,” Chou explained. “So to the extent that employers are actively ‘promoting’ their promotion guidelines, it may produce an unrealized expectation on the part of some employees that more promotions will be awarded than actually are, which could become a source of dissatisfaction.”

Organizations that do the best job in communicating their promotion guidelines “include the criteria on which promotions are based, so it’s clear to employees that a promotion isn’t just handed out to anyone.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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