Employee Promotion: Your 7-Step Guide on the Types & How To Promote
Losing a valuable employee can cost a company up to twice their yearly salary. How can you minimize such costs? One effective strategy is to promote employees from within, which can help retain top talent, boost morale, and drive growth.
Employee promotion is an effective way to retain employees and spur business growth. In fact, 33.63% of employees have sought new employment due to a lack of career growth opportunities in their current positions.
Additionally, this statistic is split quite evenly between men and women workers, with 32.19% of men and 34.92% of women seeking new jobs for the same reason. This article discusses why employee promotion is crucial and how it can improve workforce and business outcomes.
Contents
What is employee promotion?
The benefits of employee promotion
5 types of employee promotions
How to develop an employee promotion policy
7 steps to ensure an effective employee promotion process
Employee promotion criteria checklist
What is employee promotion?
Employee promotion (or work promotion) is when an employer decides to advance an outstanding employee with leadership potential to a different, often higher, position within the company.
This type of promotion usually brings more responsibilities, as the employee must handle additional or more complex tasks. In a senior role, they may need to manage teams, make important decisions, oversee larger projects, or lead strategic initiatives.
Promotions often come with higher pay, reflecting the increased value the employee brings to the company through their new responsibilities. This pay raise can also motivate employees by recognizing their skills, performance, and loyalty.
The benefits of employee promotion
Employee promotions benefit not just the promoted staff but also their organizations. Here are the main benefits of promotion:
- Enhanced employee development: Promoted employees usually face new challenges and learn new skills that help them grow professionally.
- Increased job satisfaction: Promotions often make employees feel valued and recognized for their hard work. This sense of recognition enhances their job satisfaction.
- Improved employee motivation and productivity: The greater responsibilities and higher pay that often come with promotions can motivate employees to perform better and be more productive.
- Flatter learning curves: Promoted employees already know the company’s culture and processes, reducing the time it would take a new hire to adjust to their new function.
- Greater organizational growth: Internal promotion builds a strong pipeline of experienced employees who clearly understand organizational mission and goals. This helps them make informed decisions that contribute directly to the company’s progress.
- Improved employee retention rate: Employees are more likely to remain with the company if they have professional growth and development opportunities.
- Lower hiring costs: Internal employee promotions require less extensive employee onboarding and minimize the recruitment expenses associated with hiring externally.
5 types of employee promotions
There are different types of employee promotions based on organizational needs and strategies. Below is a summary of what they entail, along with relevant examples of each type:
1.Vertical
The employee advances to a higher position with additional responsibilities, compensation, and authority.
An employer promotes a Payroll Executive to Payroll Manager. They’re now responsible for:
- Overseeing the payroll team
- Payroll analysis and auditing
- Hiring and training new payroll team members.
2. Horizontal
The employee moves to another position on the same hierarchical level to perform different tasks or take on expanded responsibilities. This promotion may or may not come with a raise.
A Software Analyst switches roles to become a Software Engineer. While still on the same level, they now have:
- Project management duties
- Mentorship responsibilities
3. Dry
The employee takes on more responsibilities or more senior job title, but without additional pay or benefits.
An Account Specialist receives a promotion to Account Manager, but their salary remains the same (for the time being).
4. Open
Eligible employees apply for a vacancy for a higher position, which HR announces publicly to create transparency in the promotion process.
A company posts a vacancy for a Regional Sales Manager position. It invites all eligible and interested employees to apply and compete for the promotion.
5. Closed
HR and management select eligible employees they’re considering for a promotion, without announcing it to the rest of the organization.
The executive team discreetly chooses a Finance Manager for the role of Finance Director based on their performance and potential, without advertising the role to others in the company.
How to develop an employee promotion policy
A detailed employee promotion policy is necessary as it ensures clear, consistent, and fair promotions. Here are some important tips on how to develop this policy:
1. Include the types of promotions the organization offers
Your promotion policy should define the different promotions available within the organization. This may include vertical, horizontal, dry, open, or closed promotions. Be sure to list all the types of promotions the company offers so employees are aware of them.
Additionally, explain what each type of promotion entails (refer to the table above if necessary) and what it would mean for employees who receive it. This should include information on when and how salary increases apply to the different promotion types.
Generally, salary adjustments should align with the new role’s duties and market rates to ensure fairness and competitiveness. For example, vertical promotions may result in a 10% to 15% salary increase, while horizontal promotions may come with a smaller pay hike or project-based bonuses.
2. Determine eligibility criteria
You must also establish clear eligibility criteria for promoting your staff. This might include factors such as:
- Length of service
- Job performance
- Educational qualifications
- Training and certifications
- Leadership competencies and skills.
Refer to the employee promotion criteria checklist at the end of this article for more comprehensive information on which criteria to include when considering whom to promote.
3. Detail the entire promotion process
Specify the timelines for reviewing applications, conducting performance reviews, and making promotion decisions. The promotion process usually includes evaluation methods to assess employee performance and potential, and approvals from HR and senior management.
Lay all this out clearly in your employee promotion policy to ensure eligible, interested staff follow a specific process and are not confused about what they can expect after applying or being nominated for promotions.
4. Detail the promotion application process
Explain your company’s promotion application process. This should tell employees whether they can receive promotions via nomination or open application. Nomination allows managers to recommend high-potential team members for promotion, whereas open application creates transparency by encouraging employees to apply for open positions.
5. Ensure legal and regulatory compliance
Your employee promotion policy must also comply with relevant labor laws and regulations, such as the U.S. EEOC (Equal Employment Opportunity Commission). The U.S. EEOC requires companies to promote employees based on merits and not based on protected characteristics such as age, gender, race, religion, or physical ability.
Another important law to follow is the FLSA (Fair Labor Standards Act), which ensures that employment and promotions comply with minimum wage or overtime pay regulations.
6. Communicate company promotion opportunities
Decide on how to communicate promotion opportunities in your organization. Specify how you’ll inform staff using email announcements, internal job boards, town hall meetings, or internal communications channels. Ensure everyone is aware of open positions and promotional opportunities.
Learn the skills you need to confidently handle employee promotions
A key part of your HR role is recognizing, nurturing, and promoting top talent in your organization. To help your employees grow, it’s important to develop skills in talent identification, career development planning, performance management, and internal mobility strategies.
Mastering these skills not only improves employee retention but also helps build a high-performing workforce that contributes to long-term business success.
AIHR’s Talent Management & Succession Planning Certificate Program covers essential topics such as succession planning, performance evaluations, and talent development frameworks—key components of effective employee promotion strategies.
This online, self-paced Certificate Program will also teach you to leverage career management and talent mobility to keep your critical talent engaged and on board for the long term.
7 steps to ensure an effective employee promotion process
A well-structured promotion process ensures your organization promotes the right people at the right time, contributing to organizational success and employee satisfaction. Below are seven essential steps to making sure your company has an effective employee promotion process in place:
Step 1: Establish promotion criteria
The first step is to define clear, measurable criteria for promotion. This ensures managers and leadership base promotion decisions on objective performance data rather than favoritism or bias. The criteria should align employee growth with business goals, give employees a career development roadmap, and promote a fair and equitable workplace.
It’s important to determine and document the criteria based on role requirements, company values, and business needs. This could include performance metrics, leadership skills, alignment with company culture, and tenure. You should also clearly communicate the criteria to both managers and employees and include this information in the employee promotion policy.
Step 2: Identify promotion opportunities
Next, identify promotion opportunities within the company. These could include company growth or restructuring, replacing staff who are leaving, or new projects requiring new leadership or specialized skills.
Collaborate with management to assess organizational needs and build a promotion plan accordingly. Additionally, evaluate current jobs and identify opportunities for advancement. Consider succession planning to prepare high-potential employees for future leadership roles.
Step 3: Assess employee performance and potential
Once you’ve identified promotion opportunities, evaluate employee performance to identify those ready for promotion. When reviewing job performance, examine employees’ productivity, work quality, and customer satisfaction levels. Conduct one-on-one interviews to assess their leadership skills and contributions to organizational goals.
After this, you can administer skills assessments, personality tests, or simulations to evaluate their knowledge, technical skills, and fit for the new position. At the same time, speak with their managers and colleagues to better understand their suitability for promotion.
HR tip
Providing career development opportunities is a crucial step in preparing employees for promotion. It ensures they have the necessary skills, knowledge, and experience to excel in their new roles. HR can develop training and development programs, mentoring, coaching, job rotations, and stretch assignments to achieve this company-wide.
Step 4: Work with management
Based on the results of your assessments and interviews, you can work with managers to decide which employees are eligible for promotion. HR and the manager will then need to obtain approval from senior management for this decision.
Senior management’s approval is especially critical for promotions to leadership positions, as they must support the company’s long-term growth plans and objectives. This approval must also align with the company’s compensation structure and comply with pay equity laws.
Step 5: Communicate the approved decision
Once all relevant parties have approved the promotion, the decision should be communicated to the promoted staff and then to the rest of the company.
First, speak with the employee privately about the promotion and the reason behind it. Congratulate them, acknowledge their achievements, and discuss their new responsibilities, goals, and performance expectations with them.
Next, inform their team of the promotion before announcing it to the rest of the organization. You can do so via an internal email or memo on the company’s internal communications platform or at the next company-wide meeting. The announcement should highlight the reason for the promotion, how it fits into company goals, and how it might affect other employees’ roles.
Step 6: Adjust compensation and benefits
Next, work with the finance department to adjust the newly promoted employee’s salary and benefits. Determine the appropriate salary increase based on market rates and the new role’s responsibilities.
It’s also important to ensure the updated compensation and benefits package complies with all applicable laws and regulations. Afterwards, communicate these pay changes to the employees and have them read and sign their updated employment contract.
Step 7: Onboard the employee into their new role
While the promoted employee is already familiar with company culture and work processes, they’d still need some onboarding to ensure a smooth transition into their new role. To support this, develop a personalized onboarding plan that addresses their professional needs.
During onboarding, discuss their new goals, necessary tools and resources to achieve them, and their team structure. Provide the necessary training to prepare them well for their new position. Track their performance post-onboarding to monitor their progress and provide any feedback and support they need.
Employee promotion criteria checklist
Here’s an employee promotion criteria checklist that will help you evaluate employee promotion procedures and fairness and transparency throughout the process:
Performance and achievements
Evaluate whether the employee has:
✓ Consistently met or exceeded their performance goals
✓ Taken on additional responsibilities or shown growth in their current role
✓ Accomplishments or projects that demonstrate their exceptional performance and dedication to helping the company achieve its goals
Skill set and competencies
Is the employee:
✓ Displaying the skills, behaviors, and competencies required for the higher position?
✓ Willing to learn and develop new skills?
✓ Ready for further training and development to address areas for improvement?
Leadership and teamwork
Does the employee:
✓ Have the ability to lead and inspire others?
✓ Effectively collaborate and build strong relationships with colleagues?
✓ Have the desire and ability to mentor or coach others?
✓ Motivate and engage other team members?
Alignment with company values
Assess the employee for the following behaviors and characteristics:
✓ Consistently demonstrates behaviors aligned with the company’s values
✓ Perceived as a role model for ethical conduct and integrity within the organization
Initiative and problem-solving abilities
The employee should be involved in process improvement and problem-solving in the following ways:
✓ Demonstrates the ability to handle complex challenges and find solutions
✓ Takes initiative and seeks out new opportunities
✓ Contributes to process improvements or cost-saving initiatives
Feedback from peers and managers
Gather the following insights from the employee’s team members:
✓ Have they received positive feedback from peers and managers on their performance and contributions?
✓ Have they identified any specific areas for improvement?
Readiness for new responsibilities
Assess the employee’s capability and desire to handle higher responsibilities and more complex tasks:
✓ Have they shown interest in taking on higher-level responsibilities or leadership duties?
✓ Are they prepared to handle the challenges and expectations of the new role?
To sum up
A structured and transparent employee promotion builds employee and organizational growth. Promotions reward high performers, help improve job satisfaction, provide continued career growth, contribute towards employee retention, and align employee goals with the company’s mission.
Additionally, promoting employees helps organizations retain top talent, flatten learning curves, and reduce hiring costs. A well-designed promotion policy encourages long-term employee loyalty. It also creates a strong internal talent pipeline, ensuring the right people are in the right roles to drive future success.
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