Benchmarking Pay, Promotions, and Retention

July 18, 2019

Benchmarking Pay, Promotions, and Retention

The rapid advancements in high-quality human resources data and analytics over the past few years have dramatically enhanced the influence of CHROs. This is obviously great for the careers of HR professionals, but also for the health of firms that are taking advantage of the insights to make smarter corporate strategy decisions.  

For most of two decades working closely with Fortune 500 companies, I was concerned about the inability to properly benchmark workforce dynamics against competitors. HR leaders struggled to become a more effective strategic partner in firm management. HR’s C-Suite colleagues, like the CFO, were able to come to the table with detailed data on performance in comparison competitors and financial projections to game out various business decisions. As a result, the CFO had a seat at the table, and the CHRO did not.  

Today, we have access to high-quality HR and payroll data that can portray different characteristics related to the structure of firms, accurately and in real time. All strategic decisions must now include analysis and insight from HR. This could not come at a better time, with companies facing fierce competition for their most precious resource: talent. The way we staff, manage, and reward people to accomplish work is fundamental in recruiting and retaining top performers. 

To further arm business leaders with the data necessary to help their firm make more informed decisions, we published aggregated and anonymous HR and payroll data from 13 million employees at 30,000 firms across eight sectors in the U.S. The 2019 ADP Research Institute State of the Workforce Report: Pay, Promotions and Retention not only allows firms to look at specific HR and payroll data by age, gender, firm size, and tenure but also helps them interpret what it all means (is it optimal for a manager to have four direct reports? Is 10 too many?).  

The Glass Ceiling
It would be wise for firms to review the findings around promotions, particularly when it comes to their strategies for recruiting and retaining women. Employers promote 8.9 percent of employees annually, with an average wage increase of 17.4 percent. While women receive their first promotion quicker than men—6.6 years and 7.7 years, respectively—we discovered a distinct glass ceiling for women when it comes to making it to the top levels of the firm. There is a steep decline in women being promoted to the fourth level of management as the percentage of women in management drops from 35 percent to 23 percent. This is critical not only because these elite positions have an outsize influence on corporate policy and culture, but because this level is paid more than 40 percent higher than the previous one. 

Promotions Within a Team
We can confirm that promotions within a team are associated with higher turnover among other team members. In fact, the data shows that teams in which an employee was promoted had higher turnover when compared to teams where no promotions occurred. This information tells us that employers should consider the effect of promoting individual team members and define better retention strategies for key employees.

Internal Promotions
When it comes to management positions and promotions, firms are more likely to promote internally—17.2 percent—than make an outside hire—15.6 percent. At the upper levels of management, it jumps to 21.5 percent for internal promotions and just 12.5 percent from the outside. For number of direct reports, the average number per manager is 6.9; there is significantly less span of control for women than men. We also found that workers at firms with higher average number of direct reporters experience slightly more turnover and lower promotion rates. 

Benchmarking
Every company faces unique structural challenges. Benchmarking the pay, promotion, and hierarchy numbers won’t be a panacea for business results. But firms must do it regularly (start today!) and use the data to inform firm strategy. 

How can you use the information in the report? You can start by considering if you are understaffed or overstaffed, if your company has too many supervisors, and by checking who is leaving and why. Additional items to consider are:

  • What is the ratio of external hires versus internal promotions? 
  • Do we have too many management layers? 
  • Does our company have a glass ceiling? 
  • How do average wages compare with the industry for first level supervisors?

Insight comes from linking organizational benchmarks to other business indicators. Without answers to these questions, most decisions are based solely on labor costs and budgets. Organizational decisions should be deliberate and aligned with strategy.

Armed with data to diagnose critical organizational issues, HR leaders will keep their spot at the decision-making table. Firms will only achieve long-term success when the HR team is at the center of strategic business decisions. 
 

The Authors: 

Dr. Ahu Yildirmaz is Co-Head of the ADP Research Institute.