Employee promotion policy: what you need to consider

Last updated:
July 23, 2021
October 25, 2021
min read
Brendan McConnell
Table of contents

Promoting employees within your organization is incredibly important for retaining top talent. The reason is simple: employees want to be recognized and fairly compensated for going above and beyond. To help make this process easier, it’s helpful to have a clear employee promotion policy in place.

What is an employee promotion?

An employee promotion is a recognition for that person’s contribution to your company.

Employee promotions can come in many forms, but typically will involve some combination of:

  • Higher salary
  • More senior job title
  • More and higher-level responsibilities
  • Decision-making power
  • New leadership responsibilities

As such, promotions are seen as the ultimate reward for dedication, loyalty, and high performance at an organization. They recognize an employee’s contributions, ask them to take on more for the betterment of the company, and fairly compensate them with, typically, a more senior title and more money.

Of course, this recognition can take many forms. Let’s take a look at some common types of employee promotion.

Types of employee promotion

As you can imagine, not all promotions are created equal. Most people will automatically go to “higher position, higher salary” when thinking of employee promotions, but this only covers one possibility for recognition.

Instead, there are three main types of employee promotion:

  • Horizontal promotion
  • Vertical promotion
  • Dry promotion

Horizontal promotions involve an increase in title and pay for an employee, but with little to no change in responsibilities. These promotions, also known as an “up-gradation,” recognize an employee who has gone above and beyond in their role, offers them fair contribution, but does not ask them to take on more.

Examples of a horizontal promotion include moving from a Manager to a Senior Manager, or Specialist to a Senior Specialist, with no clear increase in responsibilities.

Vertical promotions are what you typically think of when you think “promotion.” This involves upward movement, more senior job titles, higher salaries, and more responsibilities. In other words, vertical promotions ask the employee to contribute more and give them a more senior seat at the table. This type of promotion may also change the nature of the job by adding leadership responsibilities or more direct reports.

Examples of vertical promotions include moving from a Manager to Director, or Director to C-level Executive, with an increase in direct reports and decision-making responsibilities.

Dry promotions involve all the responsibility of a new title, but without the benefits that come with it. In other words, the company will ask more of the employee, but will not provide compensation or recognition in return.

Unsurprisingly, employees don’t typically look favorably on dry promotions, and they should be avoided wherever possible.

Promotions are usually either given on a discretionary basis, or paired with a job opening to which employees can apply.

The benefits of promoting employees

As you can imagine, there are a wide range of benefits associated with promoting employees, ranging from improved retention to boosts in morale and staff engagement to reduced recruitment costs.

Promotions are seen as one of the most desirable forms of recognition by employees because of the positive impact that it has on their pay, responsibilities, influence, and career growth. As such, if promotions are made available, a majority of employees will likely take notice and adjust their behaviors accordingly.

More specifically, the benefits of promoting employees for companies includes:

  • Motivating other employees. Promotions are typically visible to other employees in the organization, meaning they serve as a model for the kinds of actions, behaviors, and values that you’d like to promote as an employer.
  • Showing that you value and reward effort. Consistently showing employees that you recognize, value, and reward strong effort will encourage employees to go the extra mile in their daily work. This, in turn, boosts, morale, engagement, and company loyalty.
  • Reducing hiring costs, especially those associated with hiring more senior employees. Instead, promotions let you develop your own employees into leaders. Hiring a new employee costs roughly 20% more than promoting someone, making this a real cost saver for companies.
  • Reducing employee turnover. It’s a general expectation that hard work and commitment to the company come with promotion and more money at some point. If employees realize that a promotion isn’t coming, then they often look to greener pastures.
  • Showing that you value and promote career growth. Promotions, at their core, are a next step in an employee’s career. Lack of career growth is a major factor in employee attrition, making promotions an important technique for retaining your best talent.

Employee promotions are a critical component of any organization’s rewards and recognition program. In recent studies, it’s been found that as many as 25% of employees who leave an organization do so because of a lack of recognition.

With that point in mind and those before it, the question isn’t “why should I promote my employees?” but rather “how can I not?”

The employee promotion procedure

Like with most activities in HR, promoting employees is made easier with clear processes and guidelines in place. In this section, we’ll walk you through the key components of an employee promotion procedure.

These components include:

  1. Determining if someone is eligible for a promotion
  2. Knowing when to promote an employee
  3. Determining what type of promotion to give
  4. Identifying who is responsible for giving promotions
  5. Announcing the promotion

Let’s look at each component in more detail.

1. Determining if someone is eligible for a promotion

The first employee promotion guideline that you should create involves specifying the circumstances under which an employee might be eligible for increased salary, responsibilities, or title. This will make the decision to promote - or not promote - an employee objective and fair.

Factors that can be included in this employee promotion guideline include:

  • Performance. Heightened performance over a long period of time typically requires some form of recognition, reward, or promotion.
  • Seniority. Longer tenure employees may be due for a promotion based on their knowledge of the company and their commitment.
  • Assessment of potential. The employee may show great potential in a more senior role or technical skillset. In these cases, a phased promotion to get them up to speed might be appropriate.
  • Time since the last promotion. How long has it been since a valued employee has been promoted? If it’s longer than two or three years, then you may be at risk of losing that employee.
  • Merit and ability. Highly skilled employees who bring inconsistent results will likely require a promotion to show recognition for their efforts.
  • Training. If you have been spending time and resources training an employee for a specific role, then determine when it is appropriate to act on a promotion.

Each of these factors should be weighed by a committee of people who will determine which employees most deserve a promotion at the specific time.

2. Identifying who is responsible for giving promotions

Make roles and responsibilities clear in your employee promotion policy so that managers feel empowered to put their reports forward for promotions.

There should be a written process in place for who is responsible for recommending, considering, and approving a promotion.

Typically, these roles are:

  • Managers. Responsible for identifying high performance employees and recommending them to HR for promotion.
  • HR Managers: Responsible for reviewing recommendations, weighing considerations like tenure and market compensation rates, and making a recommendation for a fair promotion.
  • Leadership: Responsible for determining and approving the promotion budget that is made available for pay increases.

Each of these roles should be made clear in your employee promotion policy, and communicated to all parties involved.

Relevant: Your guide to writing a letter of recommendation

3. Knowing when to promote an employee

Once you’ve outlined the circumstances under which an employee will deserve a promotion, and assigned roles, the next step is to clearly outline when a pay or title increase should be given.

Some specific - and vague - signs that your employee is due for a promotion include:

  • Excelling well beyond expectations
  • Going above and beyond their job description
  • Showing a great deal of commitment to their work
  • Willingly taking on new responsibilities without being asked
  • Finding ways to get results by adapting and innovating
  • Mastering their current job function
  • Taking on informal mentorship or leadership roles on your team
  • Requiring little to no close management
  • Showing ownership over the success of the business

If employees consistently show any of these signs, then it’s likely time to consider them for a promotion. At this stage, it’s the manager’s responsibility to champion the employee and push for them to be fairly rewarded.

4. Determining what type of promotion to give

The next step in your employee promotion policy should be to outline what type of promotion should be given. Which one you choose for a given employee should be made on a case-by-case basis.

Vertical promotions should be given when an employee has clearly demonstrated that they have mastered their current job description, and is capable of taking on more responsibilities, decision making power, and leadership roles.

Horizontal promotions should be given if an employee has demonstrated a trend toward mastering their current position, and/or has achieved significant results for your organization. They may not be ready for a vertical promotion just yet, but they are trending in that direction. In these instances, the employee should be recognized and compensated for their efforts with a more senior position and more money.

Dry promotions should rarely be given, as they demand more from the employee for no increase in pay or title. If a dry promotion is absolutely necessary, then you should consider time stamping it so that a horizontal promotion or merit increase is attainable within a defined period of time.

5. Announcing the promotion

Once a decision has been made to promote an employee, the final step in the process is to announce it to the company.

Before announcing the promotion company-wide, you might want to consider meeting with the team that will be most affected by the change first. Make the announcement to that team, get their feedback and reaction, and then make it public to the rest of the company.

Depending on the size of your company, your employee promotion announcement might involve:

  • An announcement at an all-staff meeting
  • A company-wide email or memo
  • A blog post on the company website
  • A press release
  • Social media posts

It’s important to make a big deal out of promotions, and to clearly communicate why one was given. This will help show other employees what they need to do and accomplish to follow in their peer’s footsteps.

You should include:

  • The reasons behind the promotion
  • A congratulation to the person, and a show of support
  • A summary of the employee’s old and new role
  • A summary of the employee’s achievements
  • An encouragement for everyone to congratulate the employee

Curious about what an employee promotion announcement looks like in practice? Let’s look at a sample now.

Sample promotion letter to employees

Here’s a basic sample promotion letter that you can send to employees. Adapt the language and specific content as needed.

Subject: Karen Rogers – Director of Marketing

Hello team,

I am pleased to announce that Karen Rogers has earned a well-deserved promotion to Director of Marketing, effective March 1st.

Karen has been a powerhouse on our team for many years, and we simply couldn’t achieve the results we’ve had without her. She brings more than 15 years of experience in marketing and communications to the position, along with unparalleled knowledge of our industry and company.

In her previous role as Senior Manager, Marketing Communications, Karen oversaw the content and PR teams. In her new role, Karen will take over leadership of all marketing functions.

I would appreciate you congratulating Karen on this well-earned achievement.

If you have any questions moving forward, please don’t hesitate to ask.

Congratulations, Karen!

[Your Name]

[Your Title]

This announcement framework can be used to announce each promotion at your company, and should inform the type of messaging you make public.

Always keep in mind that promotions should be a joy to give. Everyone wants to be fairly recognized and rewarded for their efforts, and your organization should make a point to ensure that all employees feel valued.

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