The pros and cons of promoting without a pay increase.

Would you take on additional work without additional pay? Probably not. You are probably also thinking, would I ever offer my employees a promotion without a raise? This probably also seems like a bad idea. What we are talking about here is a dry promotion. A dry promotion is an increase in responsibilities and title, but with no corresponding increase in salary or benefits.

IEarlier this year the Mercer’s QuickPulse™ Compensation Planning Survey indicated that the amount of the salary budgets organizations are setting aside for raises is lower than the year before. This has led some to believe that dry promotions might be an increasing trend. This isn't necessarily the case though, and there is some broader context to be understood.

Compensation planning trends

The Mercer compensation planning surveys have shown that employers continue to invest in compensation and promotional increases. While the compensation and promotional increase budgets are declining slightly as the labor market has started to show signs of stabilization, they remain above historical trends because of the continued tight labor market and low unemployment:

• The total compensation budget increases for 2024 (including merit and promotional increases) is 3.8%, down from the 2023 budget increase of 4.1%.
• Employers who separately budget promotional increases were projecting a budget for 2024 of 1.1%, down just slightly from 1.2% for 2023.
• Fewer employees can expect promotions this year. While in 2023, employers promoted 10.3% of employees on average, in 2024, they are planning to promote around 8%.
• Employers indicated the average promotional increase they were expecting for 2024 was 9.2% (for an employee promoted one level). This is down just slightly from the 2023 average promotional increase of 9.4%.

All of that is just to say that we’re not seeing any data indicators that dry promotions are becoming more frequent. Dry promotions are a practice that have always been around, and while we would shy away from recommending it be a common practice, it can be warranted at times. Let’s take a look.

Moves that support career progression

In periods of economic uncertainty, companies will constrict their spending on salaries along with a lot of other restrictions. However, it would be a double whammy to employees if they also said, “Sorry, no promotions” until the economy rebounded.

A dry promotion would allow employees to progress in their careers even if salary increases are not in the budge. Giving the employees a higher title means taking on greater responsibilities and higher-level tasks which would provide opportunities for professional growth and development. If the employee is willing to accept that dry promotion, they can choose to stay with their current organization and negotiate for a pay increase down the road and receive other nonfinancial rewards now, such as an increase in flexibility, visibility, and authority.

The consequence of this is that they can take their new title and experiences and search for the same, or a higher role elsewhere. With that title and experience under their belt, the employee is more likely to be considered a viable candidate. They are also put in a better position to negotiate for higher pay.

Sometimes, the employer will offer to ‟true-up” the employee down the road. In other words, take the promotion now and your pay will be adjusted later, presumably when better economic conditions return. To build trust, the employer should offer, and the employee should expect, to have this commitment documented in writing with a stated time frame in which to revisit the arrangement.

Moves for high potentials

At times, an employee may be currently paid for their potential versus paid for the role they currently have. This may result in the employee being overpaid for their current position and even already paid competitively once promoted. Again, the employer sees the potential and wants to encourage career advancement and motivation for that employee, but increasing their pay will cause equity issues or even reduce their ability to receive pay adjustments, such as merit increases, down the road.

They may offer the promotion with new responsibilities and title, but inform the employee that they’re already paid competitively for the new role. Presuming the employee agrees with the assessment, this promotion may better position them in the new range for larger pay increases down the road. Of course, they also still gain from the new role and title and benefit from the recognition within the company. In some cases, these moves may even be accompanied by eligibility for larger short- or long-term incentive opportunities. In those cases, the employee’s target total compensation is increased while their base pay is not.

Moves that result in micro-job changes – the ‟perceived promotion”

Occasionally, employees perceive that they have been ‟promoted” when they are asked to take on a new skill and responsibility. For example, in the past few years, most knowledge workers have been asked to learn new technologies such as AI to enhance their efficiency. Another example is when an employee might be responsible for one product or region and is now asked to perform the same role for more than one product or region. Are either of these promotions and is a pay increase warranted? Most compensation and HR professionals would probably agree that the answer is ‟no,” these are things an employee does as they grow and perform in their current role. In these situations, it should be expected that pay increases for a promotion do not happen. Our guidance here would be to temper expectations and focus on long-term earnings and career potential and not to get derailed by the short-term pay result.

How to address the need for a dry promotion with employees

Of course, at the time of promotion, the ideal scenario is to bestow the employee with the title, increase in responsibilities, and pay increase. When that is not possible, there is bound to be a negative impact on the employee’s engagement, motivation level, and attitude toward the company. If you find yourself in that situation, consider the following ideas:

1. Commit to a possible pay adjustment in the future, which may somewhat lessen the impact, but be clear that’s it’s not guaranteed.
2. Address any changes to incentives or benefits that also come with the promotion.
3. Consider whether other elements in the total rewards portfolio (e.g., recognition and one-time awards) can be used to sweeten the pot in lieu of traditional promotional increases.
4. Consider whether other elements in the total rewards portfolio (e.g., benefits) can be tweaked to free-up funds to allow for traditional promotional increases.
5. Explain the company’s situation in the current economic condition and offer the employee the choice of accepting the dry promotion. In many situations, if the promotion does not come with considerable additional burden/duties, employees may accept the offer. Positioning it as a choice can potentially dilute the negative sentiment.

It’s important to be mindful that some employees will share details regarding the situation with their co-workers and possibly spread a negative sentiment or distrust of the company. Explaining some of the benefits of a dry promotion could help to navigate any negative taste left in the employee’s mouth. Some of those benefits include:

• Skills development
• Career growth
• Increased visibility
• Expanded networking opportunities
• Personal growth
• Resume enhancement

Ultimately, dry promotions are not ideal...but you already knew that. In addition to considering the pros and cons of dry promotions to retain the talent you need, consider whether there are better ways to manage your salary spend and broader talent strategy.

Mercer can offer many suggestions on how to address situations that might require a ‟dry promotion.” Give us a call or send us an email to be connected with a consultant in your region.

About the Authors

Andre Rooks is a Partner at Mercer, where he specializes in developing strategies to enhance the effectiveness of rewards programs. Andre earned a Bachelors of Science in Economics from the University of Illinois and a Masters of Business Administration from the University of Chicago Booth School of Business.

Kanak Rajan is a Partner with Mercer in Chicago. He works with clients to helps them solve complex issues in compensation and talent strategy. Kanak holds a bachelor’s degree in engineering and an MBA in finance from the University of Chicago’s Booth School of Business.