Companies have fallen into the habit of promoting employees with no pay increases since the downturn in 2008. Ten years ago, it would have been the exception. Now according to Robert Half International, about 20% of companies acknowledge that awarding promotions without pay increases is a "somewhat common" practice.
Possible reasons for not giving promotion increases?
1) Company is in a “rough patch” financially
2) Companies have a philosophy of requiring a probationary period before awarding pay increases
There may be other reasons, but for the purpose of this article I'm limiting it to these two.
I can buy #1if I have to. If not handled carefully, however, this practice can lower morale and create resentment among employees who are asked to take on more responsibility, for the same pay. Companies need to set a timetable and not leave the waiting period open-ended.
I really don’t like #2. If I’m an employee and my manager tells me “I am promoting you to Sr. Engineer. Of course you know that you will have to pass your probationary period showing satisfactory performance before we can give you any pay increase.”
I don’t care how nicely my manager says this, what I hear is: “The company thinks you can do the job, but we aren’t quite convinced. So if you can’t perform, at least we won’t have wasted any money on you.”
Gee ---- thanks for the vote of confidence. Thanks for having faith in me. Thanks for making me wait for the other shoe to drop.
Companies hire people from outside the company, and they aren't sure whether they can perform. And most companies don't put them on a "probation". At least they know the internal employee and have a better feel whether he/she can succeed in the job.
Companies can get into legal trouble. If a company promotes someone with no pay increase from a non-exempt (where overtime is involved) to an exempt job, it can create a big problem if not dealt with carefully. If the company doesn’t make the correct changes in terms of employee status, it might end up with an exempt employee still getting overtime. This will, no doubt, create a problem with your other exempt employees.
It can also cause discrimination issues if companies aren’t careful. If a company doesn’t give the first female Vice President in the company a pay increase upon her promotion knowing that all her peers (Vice Presidents) are making a lot more money, it shouldn't be surprised if it gets slapped with a discrimination claim. The same logic would apply to employees in other protected classes.
Hopefully in the next year companies will start cleaning up all the promotion pay issues that have been left hanging.
If a company doesn't already have promotion guidelines, I would suggest it develop and communicate them so that employees understand how the process works. Here are some suggestions on what the guidelines might include:
- Define what constitutes a promotion. Is it a change in pay grade? Is it a change in job title? A change in the actual work being performed?
- Establish eligibility requirements. Is it minimum tenure with the company? Minimum tenure in the current position? Do you add a minimum performance rating from the last performance review to the requirements?
- Define when a pay increase occurs. Does it occur at the time of promotion no matter what time during the year? Does it occur at any time during the year but with the pay increase withheld until the next merit/salary review? Does it occur only after "passing" a probation? Be consistent.
- Size of pay increase. Will your company have a minimum increase? Will increases differ by non-exempt, exempt and management? Does the increase depend on where the employee’s current pay falls in the new pay grade?
- Special circumstances. Special circumstances need to be spelled out. An example might be keeping the employee’s pay “whole” due to the loss of overtime when moving from a non-exempt to exempt job, etc.
- Alternatives to pay increases. If a company promotes an employee and will not provide an increase in pay due to whatever reason, should the company provide other forms of reward in the interim--- flexible work-time, increased vacation days, special professional training, etc.?
My opinion is that a promotion comes with a pay increase. Period. Leave the compensation technicalities out of it. Let’s not get our “knickers in a twist” over technical “rules” we learned in Comp 101. Example: Not giving a pay increase because the employee's pay is in the 3rd quartile in the new pay grade. How motivating is that? Do you really think an employee would understand the rationale if you explained it to him/her? Can we even defend it? Honestly isn't developing pay ranges a "crap shoot" anyway? Who really knows what a market rate for a job is?
Companies today are all about "spreading the love" to employees. Retention is key now.
If the company believes the employee deserves a promotion, then a pay increase needs to accompany it. To do anything less shows a lack of confidence in the employee’s ability to perform in the new job. If management is not sure the employee can perform, don’t promote. And if the company is not able financially to give an increase, don’t promote. Companies need to wait until they have both confidence in the employee and are able to give an increase.
OK I've told you my opinion. Anybody want to share theirs?
Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career. Her true love is working with local national issues. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has also been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. She lives in Dallas and has 2 four-legged children and one Chinese daughter and granddaughter (sort of) .