Why Employee promotion policy crucial for your growing business

There may come a day when it’s time to develop a formal employee promotion policy for your growing business.

After all, taking on more customers or expanding your business offerings often requires key managers who can take on more advanced responsibilities. It’s helpful if they have existing core knowledge about your business.

But what exactly does an employee promotion policy cover? When should a company consider putting one into place? And what are the benefits of having a promotions policy?

To find some answers, let’s take a closer at the topic.

Promotion is an employee’s movement to a higher-grade level, either within the same department or to another department due to a change in duties. To put it another way, a promotion is the upward advancement of an employee to a post with better pay and privileges, more prominent profile, and increased job responsibilities.

The ultimate purpose of a promotion policy is to clarify pay adjustments, job title and responsibilities related to a specific rank and job category.

Note that an employee should not receive a new job title as one might get a performance bonus. Instead, employees should advance based on their skills and performance.

Having a promotion policy to support internal mobility also helps encourage employees to apply for positions for which they are qualified – and in keeping with their long-range career interests and objectives.

A broad policy not only communicates that you believe in your employees and support promoting talent from within your organization, but also it sets boundaries, standards and expectations on how employees can gain more responsibility. (Plus, too detailed a policy may prove too restrictive in some unforeseen situations.)

Each business is different, and not every job position requires a great deal of detail or deep knowledge. Still, one might expect to document the following information in a promotion policy:

  • descriptions
  • Experience required for the positions
  • Required high performance demonstrated in an applicant’s two or more recent job review cycles
  • Skill set that matches the minimum requirements of the new role.
  • Personal motivation and willingness for a change in responsibilities

Your promotion policy should also include:

  • Interview and promotion procedures
  • Objective selection criteria that doesn’t create barriers to protected categories
  • Safeguards against adverse impact on protected groups
  • Procedures for internal communication of positions before a public announcement
  • Steps an employee should take to apply for the position
  • Documentation of who is interviewed and promotion decision taken
  • Compliance with U.S. Equal Employment Opportunity Commission (EEOC) laws and guidelines

Managers and hiring decision makers should be trained on hiring and promotions, including legal requirements. Holding them accountable for following the promotion process helps communicate your process is fair and nondiscriminatory.

Although some companies require a specific amount of tenure before promotion, it often is not a good idea. If employees are ready to be promoted but haven’t reached the minimum time requirement, you risk losing them if they’re passed over. 

Keep in mind that a high performer should be rewarded and not simply promoted. The potential to add more responsibilities and rewarding good performance in the current role are two different things. Organizations tend to reward top talent through job promoting them without understanding whether they have the potential to take up new responsibilities successfully.

So, remember to assess current and potential performance carefully.

As companies compete for talent, every business should consider having an established employee promotion policy.

Here’s why:

  1. It can help dramatically improve your recruitment and retention success rates. Prospective employees who see that internal career advancement is valued will want to join your organization, because you have a solid employer brand. Meanwhile, existing employees may be motivated to stay with a company that encourages such progression.
  2. The business owner saves time and costs associated with training a new employee. An internal candidate already knows the company’s culture, internal partners and services, products and processes.
  3. A promotion policy helps the company advance only the most qualified staff members who will bring needed skills to their role. Outlining the criteria for determining if an employee meets the skills to perform the expected duties reduces the chances of a mismatch between employee and job.
  4. Engaged employees are typically happy employees who help market your business. When they interact with customers, the community and potential employees, they will communicate your brand in ways that boost your bottom line.
  5. Having a promotion policy may also reduce legal risks. For example, lawsuits may be more possible if the promotional practices appear to be discriminatory or favoring certain people.
  6. A clear, transparent promotion policy that applies equally to any employee seeking a promotion can also help foster acceptance of newly promoted employees.

What are the consequences of not creating a promotion policy? Before you promote an employee, make sure you have a strong, effective and established promotion policy. Avoid discrimination when promoting employees.

Employees should always be considered for promotion regardless of age, sex, race, color, national origin or disability. Discrimination lawsuits related to promotions are most common when there is no standard promotion policy, or it is inconsistently applied or not well documented.

Some potential consequences of lacking a promotion policy include:

  • Lawsuits from disgruntled employees
  • High turnover rates from departing dissatisfied employees
  • Difficulty in attracting talent if there’s no career path possible via promotion
  • Low morale and productivity in your workforce

Remember: Changing your policy to accommodate a new situation after the fact may expose your company to legal risk if there’s an appearance of favoritism.

Given the complexities regarding promotion policies, you might consider working with an HR professional and legal counsel. They can help you mitigate risk while also communicating clear expectations of how your organization’s promotion process works.

At what of a company’s life should the policy be created?

Once your company’s basic administrative infrastructure is in place, it’s time for a promotion policy.

An HR structure is needed to provide the job description, an outline of expected job duties, education, and minimum required experience as well as (and most importantly) how jobs in your organization connect from lower levels to more advanced positions in a clear career path.

Once the promotion process is outlined for the employees in your company, make sure there is a culture of accountability in place. Auditing the promotion process routinely ensures that the procedures are applied equitably across your organization.

After all, if no one will follow the policy, there’s no point in putting one into place.

How do you communicate the policy to employees?

Here are five ways you can be effective in communicating a new promotion policy to your employees:

  1. Document the new promotion policy in your employee handbook.
  2. Be transparent by holding a staff meeting to communicate the promotion policy.
  3. Send the new policy to all employees.
  4. Provide training to managers when necessary.
  5. Tie the promotion policy to your employee talent program to motivate your high performers.

In instances where filling a position will involve conducting interviews for qualified job seekers, it’s wise to first advertise the job vacancy internally. Even if the person selected is a new employee, giving existing qualified candidates a chance to apply for the job may raise employee morale.

It is important to state in any written promotion policy that every promotion is at the organization’s discretion.

That’s because there may be unusual instances in which you may not execute exactly what’s in the policy because of unforeseen circumstances (e.g., in the aftermath of a natural disaster or because of economic impacts from an event like the COVID-19 pandemic).

In small and mid-sized businesses, career paths are often less defined, leaving fewer opportunities for employees to be promoted. That means there will probably come a time when you’ll have to deny an employee a promotion.

Once you’ve developed them, be sure to follow your company’s promotion procedures carefully. Your current employees should apply for the job interview for the position just like outside applicants. Evaluate internal and external candidates equally to determine the best-qualified person for the position.

Should you have to choose an outside candidate or from among several existing employees, consider carefully when and how you will break the news. A one-on-one conversation at the end of the day may make it easier for you to break the news with current staff.

Summary

Knowing why, when and how to create and implement a company promotion policy is an important step in insuring your company’s success while also potentially minimizing risks. Again, when it comes to ensuring how your policies and procedures align with regulatory compliance, it’s wise to consult with an HR or legal professional.

To learn more about how to build and grow your roster of talent, download our free e-book: How to develop a top-notch workforce that will accelerate your business.

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