Offering a promotion without a raise? (Guest Commentary)

Short-term gain may lead to significant long-term pain
By Claudine Kapel
|Canadian HR Reporter|Last Updated: 07/19/2011

Your organization wants to promote someone, but there’s no money in the budget for a salary increase. What do you do?

One in five companies in the United States say promoting employees without salary increases is at least a somewhat common practice, according to a new survey by OfficeTeam.

Further, 55 per cent of the employee respondents said they would be willing to accept a promotion that doesn’t come with a raise.

Although the study covered U.S. organizations, such practices can be observed in Canada as well.

But the fact employees may be willing to accept promotions without a raise doesn’t mean the practice is sound.

Organizations grappling with this type of scenario should consider these two questions:

Is the change really a promotion? To be a promotion, the individual would need to be taking on a new, higher-level job or sufficient additional duties to represent a material change to the current job. Material change could include additional areas of responsibility, expanded geographic scope or additional direct reports.

If you’re just giving someone a fancier title, but the job isn’t really changing, then it’s probably not a promotion. If your organization has a job evaluation process in place, the job should be re-evaluated to confirm the new job or change in scope really represents a higher-level position.

When will the organization be able to provide the employee with a salary increase that recognizes the promotion? If an organization is really caught between a rock and a hard place, it may find itself having to promote someone when there are no dollars for an appropriate salary increase.

This could work — as a rare and short-term strategy — if the organization can commit to delivering a retroactive salary increase within a reasonably short period of time.

On the flip side, organizations that ­regard promotions without raises as a good way to save money may find the costs of such a strategy outweigh the benefits.

Over time, such an approach will wreak havoc on the organization’s compensation programs because the rationale for how jobs map to salary ranges will become meaningless. This will erode the credibility of compensation programs, along with employee trust.

Further, it will likely erode the organization’s compliance with any applicable pay equity requirements because the relationship between job value (as defined by the job evaluation process) and compensation opportunities will become disconnected.

Although employees may say they are willing to take on more responsibilities for the same pay, they will probably become disenchanted with such a deal fairly quickly, especially when they learn organizational peers are making more money for the same level of work. That, in turn, may spur these employees to look for a new job — and their new accountabilities and title may simply make it easier for them to leave.

So organizations need to tread carefully when it comes to promotions without raises. If it becomes a widespread practice, or one that continues over time, the organization may find itself suffering reputational damage as an employer.

And, suddenly, prospective hires may not want to join them for all the money in the world.

Claudine Kapel is principal of Kapel and Associates, a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.

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