Over last many years, we have been asking the following questions on C&B matters:

Q: In a performance and salary increase cycle, say you have budgeted for a specific promotion-linked increase. Yet, due to soft growth projections you decide to lower total promotions. Consequently, what happens to the new role averages (post cycle) – does it also go down or go up?

Did this get you thinking as well?

I bet some of us thought it will go down. Wrong! It will most likely go UP!

The attached picture illustrates the why of it. What plays out is the following:

1. Mostly people in the higher comp quartile get promoted (they have spent time in the role and thereby, usually, are in the 3rd or 4th quartile)
2. They land up at the lower quartile of the comp-band of new promoted grade
3. Which means, post cycle completion, when you calculate averages for hiring, folks in the higher two categories have moved out and more people came in the lower quartile

That is what drives the averages lower. So, if you lower promotion percentages, averages would go up (even if you red-line non-promotion cases)!

That’s not the main problem. Problem is the impact it has over the medium term, with sustained attrition, that we don’t get to see on a Q-on-Q trendline. It is a Y-o-Y problem!

Here’s a likely scenario: We continue to experience sustained attrition. Growth is soft hence promotions have been reduced. TA uses the new role averages to fulfil replacement positions. Some new positions are also added to the list.

1. Problem 1: We always confront the question: new people are coming-in at higher salaries. Well, we have made the situation worse, unwittingly, by hiring replacements at higher averages (as described above).
2. Problem 2: We have to deal with a higher % of disgruntled employees who couldn’t move up.

You can imagine what would happen if this is repeated over a period of 2 to 3 cycles/ years!

There are various methods to deal with it (being equitable to existing employees and new joiners). And spending the time to thoroughly go through the compensation file is so very important. Not to be left to Rewards people alone!

But how many non-C&B folks understand these nuances? Who tells them the WHY, WHAT and HOW of it? And do we spend enough time before an increment cycle is closed, after meeting the budget?

Thoughts?