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Dec 3, 2014

Promotions are a form of reward, even though they don’t always jingle like direct cash.

A jump in title status alone is sometimes enough to be strong motivation for greater employee engagement. Psychic income, whether intrinsic or extrinsic in origin, should count as compensation, anyway, since it is part of the employee value proposition.

Movement into a higher pay classification generally means more aggressive raises, too. And when a promotional increase accompanies hierarchical advancement, the positive consequences are even greater. There are also situations when promotions are used as rewards in place of any formal pay for performance program.

A merit system despite years of denials

In fact, one particular employer’s internal policies and practices denied the existence of any merit pay approach, claiming that they maintained a membership-based “up or out” system where egalitarian principles akin to union step increases ruled.

Pay for performance was officially rejected. Merit pay was formally denied. They had a century-old automatic progression pay program.

However, a study of their promotional practices revealed that employee performance judgments were being made and applied for universal benefit, without any problems. The executives were shocked to learn they were wrong about their fears of indefensible subjectivity, but, that discovery brought them to accept merit pay.

This occurred at a major public utility on the East Coast. Hardly an innovative employer, with a management team that was anything but revolutionary, they painfully dragged themselves into the modern world by ending their ban on performance pay and implementing a merit pay system.

Some of their inevitable struggle with the concept of pay for performance was eased by special research into promotions that proved they always HAD a merit pay program but just didn’t label it as such.

Yes, the best workers get promoted

Going back into their now computerized historical employee records, an outside consultant was able to identify their best performers despite the lack of any formal performance appraisal system. Even without any rating scores to track, the best workers were apparent from the personnel files.

How, you ask? Promotions, transfers, reclassifications and other job assignment changes supplied a clear picture of how the best workers continually rose to the top by internal progressions.

The list of suspects presented to the management committee produced gasps and raised eyebrows.

Yes, the external consultant uncovered the identities of virtually all their superior performers. Yes, they always had taken individual worker performance output into account before they made decisions about assignment changes (beyond the terms of the labor agreements, of course).

When they realized they had always considered individual merit in the past, it became much easier to convince them they should formalize their judgment processes by creating and publishing a consistent pay for performance system.

A merit system was right under their nose

The new program did more than simply justify merit pay. It also facilitated the efficient movement of key talent to ideal positions of leverage where they could do the most good for the organization.

Resistance from supervisors disappeared as their skills were enhanced by the training they received on the new approaches. With decision criteria consistent and transparent rather than variable and secret (as it was in the old “promotional” era), general employee morale improved, as well.

Strange to say, it was the study proving their prior effective use of promotions as proxies for merit pay that stimulated their later wholesale adoption of pay for performance. Since the research proved they were able to effectively judge and select the best performers for promotions in the past, it became relatively easy for them to gain confidence in the idea that they could evaluate performance on current work assignments going forward.

The end result? Past experience with compensation outcomes showed the way to a superior future for the employees, the company and the community they served. And it all started with research into historical records on promotions.

What other odd originating motives have you encountered that led to major improvements in your total reward programs?

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

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