Budgets Tight This Pay Review Season? Why ‘Dry Promotions’ Are Not the Answer

December 8, 2023
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For comp & ben professionals, people teams and finance leaders, the end of the year means one thing: compensation review season. 

For a lot of companies, a key part of the compensation review process is assessing which employees could be due for a promotion. This might be because of their exemplary work or to reflect the extra responsibilities they’ve taken on over the year. 

But at the same time, many companies are thinking hard about how they can get the most out of their salary increase budget. So here’s the big question: do you need to give every employee who gets a promotion a raise as well as a change in job title? 

Some companies don’t think so. A recent survey found that almost 80% of American employees have been ‘quietly promoted’ without any extra pay. 

So this practice is certainly common… but is it a good idea? In this article, we’ll dig into so-called ‘dry promotions’, and how they could do your business more harm than good.

What is a dry promotion?  

A dry promotion is when an employee is promoted to a new position without receiving a salary increase. Businesses often do this when they want to reward their employees for their work but don’t have the budget to provide additional pay. 

When do dry promotions happen? 

Sometimes, you just don’t have the budget to give a raise to everyone who deserves one. And dry promotions can be a way to recognise and reward employees without the financial burden a promotion usually entails. 

There’s some logic to this: even without a salary bump, a promotion can give an employee a confidence boost by showing them that you appreciate their hard work. It can also give them the opportunity to learn new skills and gain exposure to different challenges and situations. 

Plus, sometimes an employee has already been promoted in all but name. They might have taken on new responsibilities or gained new reports. Or, the parameters of their job might have changed so much that their original title no longer fits. 

In these cases, it’s logical to update their title to reflect reality, even if you don’t have the budget for a raise. 

So… what’s the problem? The long-term impact of too many dry promotions 

So yes, there are some circumstances where a dry promotion might be appropriate — and could even help with employee motivation and morale. But there are also some (big) problems with this approach, especially if it’s not handled correctly. 

Lowers employee morale 

Look at things from your employee’s perspective. They know they’ve been smashing all of their targets, otherwise you wouldn’t be promoting them. But despite this effort, you’re still not willing to give them a raise? 

The fact is, dry promotions send a clear message about how much you value them and their contributions. And not the one you want to be sending. 

Over time, this can have a big impact on morale across your organisation. And you need to think carefully about whether the money you’ll save by not giving out pay rises is worth this drop in engagement. 

Impacts retention 

In a 2023 study, research group ADP built a statistical model to calculate the likelihood of employees leaving their jobs in various circumstances. And according to their findings, the chances of an employee quitting within the first month after promotion was 29%, compared to 18% if they hadn’t been promoted. 

This effect gets magnified the higher up the organisation you go: managers are even more likely to leave after a promotion than individual contributors. 

Here’s the thing: a promotion is a surefire way to instantly increase an employee’s market value. Suddenly, they have a fancy job title, more responsibilities and more options open to them. So it makes sense that they’re more likely to find work elsewhere. 

And remember, this study wasn’t about dry promotions, just promotions in general. So now imagine the flight risk for employees who have had this CV boost without the pay increase that normally goes with it. It doesn’t take a genius to see that dry promotions could lead to a pretty serious retention problem.

Reduces productivity 

When an employer makes a habit of giving employees extra responsibilities without additional pay, word gets around. Before long, other employees will come to the natural conclusion that they won’t be rewarded if they put in extra work.

Over time, this can have a devastating effect on your bottom line, because large numbers of employees will only be putting in the bare minimum. And after all, who can blame them? 

Hurts your employer brand 

Imagine you’re a sought-after professional looking for a new job, and you have two options in front of you. Both companies are offering a similar starting salary, and they seem to be comparable in terms of work culture and job responsibilities. 

But then you find out that one company regularly reassesses its pay and gives out promotions when they’re deserved — and the other has a nasty habit of asking employees to do more without rewarding their extra contributions. It’s pretty obvious which offer is going to be better for your career in the long run. 

According to a survey reported in HR Dive, 55% of employees have decided not to apply for a role after reading a negative review online. If you don’t want your potential new hires included in that number, you should tread very carefully when it comes to dry promotions. 

How to do dry promotions right (if you really have to) 

If you’re considering offering an employee a dry promotion, you’re in a tricky situation. You want to show that employee that their work is valued — that’s the whole point. But the fact that you have no extra pay to offer could send the opposite message. 

So, is there a way to handle dry promotions without sending your best employees running or impacting your bottom line? Maybe. Here are a few tips on how best to handle dry promotions, if you really have no other option.  

Talk to your employees 

First things first, you need to know whether your employee would actually value having the extra responsibilities and experience of a promotion if it didn’t come with extra pay. And the best way to find out? Ask them. 

Obviously, this will probably only work if you already have a relatively open and transparent culture — and even then, it needs to be handled sensitively. 

If you do decide to have the conversation, you should clarify to your employee that they’re completely free to decline your offer. You should also be clear that it won’t impact their progress going forward. 

Put your promises in writing 

Many organisations accompany their dry promotions with vague promises of extra pay down the line. But while this might seem like a good idea, it won’t necessarily reassure your employees, especially if you’ve made the same promises before.

Instead, consider putting together a formal agreement that outlines when the employee’s pay will be readdressed — and then follow through when the time comes.  

Sometimes, this can be enough to reassure your employees that you care about paying them what they’re worth — even if you don’t have the budget for a raise right now. 

Think beyond cash 

Salary is just one aspect of an employee’s total compensation package. And even if you can’t increase their base pay right now, there may be other ways to sweeten the deal. 

For one thing, you may be able to offer them increased benefits such as annual leave, flexibility or access to company perks. 

And for certain roles, you might be able to increase variable compensation elements like bonuses or commissions. This can be easier to justify to your organisation’s leadership, because they’re directly tied to top performance and won’t be paid out unless the employee meets certain requirements. 

Avoiding the need for dry promotions with salary bands  

In our humble opinion, the best way to avoid the necessity for dry promotions in the first place is to build a strong and scalable salary band structure that works for your business. 

Here’s one way this can help. Imagine an employee whose pay is currently sitting somewhere around the top of their salary band. If you promote them, you’ll be able to move them up into the next band with only a marginal increase in pay — especially if your salary bands overlap. From the employee’s perspective, they’ll be reassured by the potential for growth within their new salary band. 

Your salary bands should also be structured in a way that allows for progression within each one. That way, those employees who can’t move up a full level will still be able to get a small increase in exchange for their extra work. And the fact that you know there’s a set maximum to the increase they can get makes it much easier to plan your budget. 

But the main benefit of salary bands is that your employees will understand that there’s logic behind your pay decisions. This makes them much less likely to feel that they’ve been taken advantage of or manipulated into taking on more work. 

Learn more about salary bands 

Want to learn more about salary bands and how they work? Start with our salary bands 101 article for the basics, then move on to our in-depth guide to the pros and cons of salary bands. Still want more? Check out our ebook on the power of salary bands for the deep-dive. 

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