The HR Professional’s Guide to Determining Promotional Increases — Compensation & HR Group (2024)

Salary increases are just like our relatives.

Merit increases are the close relatives you see regularly, and promotional increases are the distant cousin you only see every few years.

You like the distant cousin, they’re flashy and fun every time you see them, but you want to learn more about them.

There’s a reason everyone loves promotional increases: career advancement is one of the most important motivators for employees.In theemployee engagement surveys we administer, a lack of steps in the career ladder is a major source of employee frustration. Even more disappointing, if employees do get promoted, and the rewards don’t seem to live up to their expectations, you can all but guarantee they won’t be around much longer.

Now, that doesn’t mean you go around promoting people gratuitously. No.

A promotion requires a significant increase in duties and responsibilitiesresulting in a grade, job title and salary change. The scope and complexity of the employee’s job must increase enough to warrant a salary increase, as well as a higher-level position, one recognized in the external market as paying more and seen internally as contributing more value to the organization.

Since most promoted employees are high performers, and retaining key talent is important, we need to pay attention to how we reward our promoted employees.

How can you make sure that distant cousin, promotional increase, only comes around at the right times, just when you’re ready to see them?

Once you’ve decided to promote an employee, you have to determine how much to increase their salary. Most organizations have salary ranges or salary bands. If this is the case in your organization, first look at where the promoted employee’s current salary is positioned in their new promoted range. Then we need to make a few considerations:

• If their salary falls below the minimum of the new range, then the increase must be large enough to move their salary into the new range.
• Caution: I don’t recommend bringing their salary to the absolute minimum of the new range.The salary should penetrate far enough into the salary range, so it doesn’t fall below the 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’ll 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.
• Please note that arbitrary “caps” placed on promotions will hinderyou from properly rewarding high performers and from paying a market competitive salary.

How to Handle a Merit Increase + Promotion

Now, just because you invite your distant cousin, promotional increase over, doesn’t mean you can’t bring over merit increase, too. In fact, most promotions happen as needed throughout the year, so including a merit increase with a promotion is typical.

Three things to consider with merit increases coupled with promotions:

1. If the employee’s promotion requires a transfer between departments, including a merit increase gives the former manager an opportunity to administer a final performance review.
2. If the performance review and merit increase is for less than 12 months, then I encourage a prorated merit increase.
3. Usually the prorated merit increase is calculated and added to the employee’s current salary prior to the promotional increase being applied.

I’d be remiss if I didn’t briefly address lateral moves and demotions (who are even more distant relatives than promotional increases).

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.

All in all, promotions are an essential relative in our pay increase family. They deserve our attention, because the more attention they get the more they come to visit. Not just around the holidays.

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Note: If you enjoyed this article, check out my new bestselling HR book Pay Matters: The Art and Science of Employee Compensation.

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