Do you have a distant relative you don’t think about very often? Or maybe one you don't see unless it's a major holiday, like Thanksgiving? I have a few of these relatives, the ones we wish we could fit more regularly into our busy lives...
I was thinking how salary increases are like our relatives. Merit increases are the close relatives we see regularly. Unfortunately, promotional increases are the distant relatives, out of sight, out of mind. In fact, this may be the first, or the only, article you will ever read about promotions. Merit seems to get all the attention.
One of the most important motivators for employees is the opportunity for career advancement. In theemployee engagement surveys we administer, a lack of steps in the career ladder is a major source of employee frustration. Furthermore, if employees do get promoted, the rewards don’t seem to live up to expectations.
Promotion is defined as moving an employee into a job with a significant increase in duties and responsibilities resulting in a grade, job title and salary change. The scope and complexity of the employee’s job must increase enough to warrant a higher level position, one recognized in the external market as paying more and seen internally as contributing more value to the organization.
In organizations that encourage promoting employees from within, 10-15% might be promoted each year. Since most promoted employees are high performers and retaining key talent is important, we need to pay attention to how we reward promoted employees.
Determining a Promotional Increase
Most organizations have salary ranges or bands. If this is the case in your organization, first look at where the promoted employee’s current salary is positioned in the new range.
- If the salary falls below the minimum of the new range, then the increase must be large enough to move the salary into the new range.
- Caution! Bringing the salary to the absolute minimum of the new range is not recommended. The salary should penetrate far enough into the salary range so it doesn't fall below minimum if ranges are increased the following year.
- Deliver an increase percentage that places the new salary appropriately, based on anticipated performance in the new job and where current job holders in the same range are paid.
- To achieve correct salary placement, promotional increases typically average between 7% and 12% for a one grade level promotion.
- If you currently use a fixed percentage for all promotions, such as 8%, consider using a range of percentages. Each promotion is different and a range gives flexibility to address various issues.
- If an employee is receiving a two grade promotion, you will likely need to double the average promotional increase range to accommodate the multiple grade promotion.
- If you have a "cap" imposed on promotional increases, such as no greater than 10% or the new salary cannot exceed the new salary range midpoint, consider removing the restrictions.
- Arbitrary "caps" placed on promotions will hinder you from properly rewarding high performers and from paying a market competitive salary.
Merit Increase Plus Promotion
Most promotions happen as needed throughout the year, so including a merit increase with a promotion is typical.
- If there is a transfer between departments, including merit gives the former manager an opportunity to administer a final performance review.
- If the performance review and merit increase is for less than 12 months, then a prorated merit increase is granted.
- Usually the prorated merit increase is calculated and added to the employee’s current salary prior to the promotional increase being applied.
Lateral Moves
Organizations don’t usually consider employees moving to a lateral position eligible for a promotional increase. But there may be times when awarding an increase is appropriate.
- If an employee transfers to a job at the same grade level, then no promotional increase is typically given.
- If an employee is asked to take on additional responsibilities requiring a new skill set, then a salary increase, not a promotional increase, may be reasonable.
Demotions
The opposite of promotions, demotions represent an employee’s grade level decreasing.
- In most organizations pay is not decreased.
- Salary may be “grandfathered” or kept the same.
- No future salary increases are granted until the employee's salary is within the current salary range.
Promotions are an essential relative in our increase family. They deserve our attention so they don't become distant.
Happy Thanksgiving! Enjoy seeing your relatives and remember to spend some time getting close to those distant ones.
A note from David: I have taken on a new role with the Compensation and HR Group.If you need consulting assistance or would like to say "hello" please contact me atdweaver@comphrgroup.comI'd love to hear from you.
http://chrg.compensationhr.com
© 2016 David Weaver. All rights reserved.
