Promotions have slowed. Why HR needs to pay attention

One of the most interesting and important pieces of information about the contemporary workplace was produced last quarter by ADP’s Research Institute, which has access to the payroll and job information for millions of U.S. workers (16% of U.S. employees, by their estimate). Their researchers looked into a topic that has gotten very little investigation, even less by practitioners than by academics: What do promotions look like today?

Those of us who are older will remember the days when compensation systems were driven by promotions: Your pay was largely tied to your job title; the way you got ahead in terms of pay was to get promoted. Organisation charts were “tall” in that they had many positions in them, and promotions were reasonably predictable, especially at lower levels in the organisation. One could expect, for example, to be promoted eight levels from “test engineer” to “junior engineer” to “engineer” to “principal engineer” all without moving into management. Promotions were a big deal and a big motivator—not only because of pay but because of the recognition and status that came with them.

We started flattening the organisation chart in the 1980s, collapsing these hierarchies. This was, in part, to make it easier to move people across work tasks (the principal engineer could be asked to take over something being done by a junior engineer without the obvious status conflict) and, frankly, also to eliminate the pay increases that otherwise were automatic with promotions.

So, what do promotions look like now?

Analysing promotions and quit rates

ADP reports first on new hires, where employees are most impressionable and probably most motivated to secure some recognition. In the first two years on the job, only 4.5% got promotions. By comparison, a WorldatWork survey found that 9% of employees got a promotion on an annual basis in 2014—so the current number would be, at best, only one-quarter as many. The two estimates are probably not perfectly compatible, but even if they are off by a bit, that is a huge difference.

Now for the most important part of the story: 29% of those who received a promotion quit within a month. That is a stunning figure, especially because promotions now are rare and unlikely to be automatic—so they should be going to our best performers. It is not just turnover; it is the turnover of our better performers.

If we are thinking like good analysts, we might say, “I wonder if those are just people who were going to quit anyway, and their bosses were just chasing them with a promotion that was not going to matter.” That is a good question, but even if it were true, it would still be amazing that 29% of our best performers could not be retained even with a promotion.

Now, do the promotions actually cause them to quit? That seems to be nonsensical, except that we know that promotions are not just a change in title but almost always a change in responsibilities. In other words, the work could well get harder. But the ADP folks saw that question and tried to estimate how many of those 29% likely would have quit without the promotion—In other words, they had the characteristics that would have caused them to leave anyway. They estimate that about 18% of them would have quit anyway, so the promotion caused about 11% of those promoted best performers to leave.

What would be nice to know is whether those who were promoted and quit got different deals than the 70% who were promoted and stayed. What we do know from other surveys, though, is that it is often the case that promotions can come with more work but not more rewards. A Robert Half/OfficeTeam survey of employers found that 39% of HR managers said it was common for their organisation to offer a promotion with no pay increase. They had asked the same question seven years earlier and found that 22% did it then.

The future of promotions

Why would we do this? Our CFO colleagues are likely thinking that the promotion itself is a reward: You can brag about it to your friends, and we can give them an increase later, saving money in the process. That Robert Half/OfficeTeam survey found that one-third of workers would not accept a promotion without a pay raise, but two-thirds would. So, are the CFOs right?

Of course not! The reason two-thirds will accept the promotion without the pay increase is that it now puts them in a different, higher-paid job market when they go looking outside. Those who will not accept the promotion without a pay increase are likely just angry. Those who accept it are likely to say, “Thank you for helping make me more valuable elsewhere. I will now cash that in.”

What would be an appropriate pay raise to go with a promotion? Back to that WorldatWork survey from 10 years ago, the average increase then, adjusted for inflation differences, would be about 10% today. Certainly, what is appropriate varies by job and context, but it is probably a useful benchmark to see how far away we are now.

The promotion decline is just another example of how, despite all the complaints about the difficulty in hiring and retaining employers, we just are not doing very much to address it.

About the author: Peter Cappelli is HRE’s Talent Management columnist and a fellow of the National Academy of Human Resources. This article was first published on Human Resource Executive.