The employee experience is intensely personal. Professional successes, as in job promotions, are an important component of that experience. And while many employers have the best intentions, sometimes their HR practices can be bitter, like a wine with too many tannins. Dry promotions are a perfect example.
The Wall Street Journal and CBS News have been buzzing about the concept of dry promotions recently, but they have overlooked a significant risk: This practice can turn into something worse than a bitter taste in employees’ mouths. Dry promotions can cause systemic and individual pay gaps, effectively creating legal as well as financial hangovers for employers.
The Equal Pay Act of 1963 (EPA) and similar laws around the world require employees who perform substantially similar work to be paid similarly or equally. That does not mean that all employees in the same job must be paid the same; rather, any differences in pay need to be for objective, gender-neutral reasons. Acceptable reasons for pay differences include job level, experience, performance, geographic location and so on.
Time in job often is used as an indicator of experience, and it’s a valid reason for pay differences (especially for newly promoted employees). However, to substantiate your pay decisions, multiple factors must be evaluated using a multi-variate regression analysis.
Also, pay equity analyses should be conducted for your promotions to understand whether pay gaps exist among promoted employees’ new set of peers. Finally, if pay gaps are identified at the group or employee level, those gaps must be investigated and remediated.
Remember: Pay discrimination is still discrimination, even if it’s unintentional.
Just as winemakers seek the perfect balance in their wines, so too should HR seek to have balance in their pay management and governance practices. This starts with how you organize your compensation function.
Organizations with a centralized HR operation are strongly correlated with less discrimination in the recruitment process. And while recruitment is a different talent process, when there is a lack of oversight and ownership in the processes that touch pay, we find inconsistencies in pay decisions as well as unintended pay gaps.
Another indicator of good pay management is how well defined your processes are. For example, how have you defined what is considered a promotion? The recommended practice is to use the job level and associated job evaluation criteria to determine whether the job change is a promotion and if the employee meets the defined criteria and skills or expertise. Pay grades should never be used as the basis to determine a promotion. A change in pay grade comes only after a job-level change.
What is guiding HR and managers in determining promotional pay changes? If an employee’s pay is below or lower than the minimum of their new pay grade, you need to consider the risk of paying them less than their peers with similar characteristics (e.g., tenure, performance, geographic location, skills/expertise).
In jurisdictions where pay ranges must be disclosed, whether upon request, job change or some other situation, you also should consider what is and will be shared with employees so you can proactively clarify any differences as well as provide insight into their future pay opportunities. This type of detail also should be outlined in your pay transparency communication and change management strategy.
One common practice to watch out for is the use of prior pay to determine the new pay for a promotion. Salary history bans have been the norm at every level across the United States, and U.S. courts have ruled against using prior pay in defense of pay differences. This makes prior pay, including internal pay history, something to leave off your list of considerations when determining pay for a promotion.
Finally, while one-third of U.S. organizations are sharing pay ranges with employees, more are planning or considering doing so in the future. This means there is a small percentage of the U.S. workforce that understands their current and future pay opportunities. Dry promotions will only exacerbate misconceptions employees have about their pay and career opportunities. Employees want to trust that their employer will take care of them. That trust begins to erode when employers ask employees to take on more work without any reward.
Gain a better nose for comprehensive and reputable pay equity programs by taking a moment to examine your organization’s approach to promotions and the pay practices that accompany them. Ultimately, that approach also will support you in preparing for any future mandated reporting.
Look at patterns and trends among your current and past dry promotions.
Ask yourself:
A well-structured career framework is at the heart of meaningful career experiences for employees. These foundational structures are no longer only a best practice; European pay equity and transparency laws have made them a requirement.
Consider:
Look at your practices from a fair pay perspective instead of what is prevalent. Just because something has been popular doesn’t make it right.
Ask:
The proliferation of pay equity and transparency laws are attempting to right the wrongs of career and pay inequities, both of which can be traced to dry promotions. Rather than awarding your employees with an empty bottle of wine, be planful about how you use tightening salary budgets.
This means accounting for high performance, promotions, market changes and your pay equity adjustments. More importantly, this will help you determine how you will make your promoted employees feel valued instead of with a bitter taste and extra work for the same paycheck.
