Better Title, More Money?

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By: Peter Lauria

The phrase “I got a promotion!” is normally accompanied by a huge smile. But getting a so-called “dry promotion”—a practice where people are elevated without any pay raise—may produce a reaction that’s more complicated.

Dry promotions gained popularity during the pandemic, when labor shortages and economic calamity conspired to force organizations to do more with less. They have since become a sort of new normal. More than one-third of firms promoted employees in 2023 by giving them a title change and more responsibilities, but no pay increase, according to a recent survey. Last year, 37 percent of firms gave workers these so-called “dry promotions,” a steady rise from 32 percent in 2021.

Employers argue that dry promotions are a way to reward and recognize employees with new development opportunities while also containing costs during a tough economic cycle. But Peter Cappelli, director of the Wharton School’s Center for Human Resources, says the practice may be shortsighted. “It just makes employees more disgruntled, and also makes it easier for them to quit,” he says.

Experts say dry promotions are on the rise as firms try to reset pay after handing out enormous increases during the early post-pandemic worker shortage. They are also being given to employees who have moved to less expensive locations without any salary decreases. “It’s a trend that is likely to continue,” says Brian Bloom, vice president of global benefits and mobility operations at Korn Ferry.

Bradford Bell, director of the Cornell Center for Advanced Human Resource Studies, sees the change as a way “to meet employees where they are at.” Numerous studies show that employees, particularly those in the middle ranks of an organization, value training and skills development at least as much as they do compensation. “Some of the biggest drivers of engagement among employees are meaningful work, variety, autonomy, and responsibility,” says Bell. “This is a response to broader employee trends.” To be sure, for the many midlevel employees unable to move up because of an older colleague staying longer in the workforce, a bigger title and real-world experience are far more valuable than a slight boost in pay.

That’s partly because the new title makes them more marketable to outside organizations. One recent study found that promotions in general, but particularly those without an accompanying pay raise, increase the likelihood that an employee will leave their company. It turns out that employees tend to view such a promotion not as a reward but as more work with less flexibility for the same pay.

And that’s what could end up costing companies, says Cappelli. When an employee quits, he says, the cost of searching for new candidates, hiring them (most likely at a higher base salary), and getting them up to speed all drive up turnover costs. Therefore, he says, dry promotions, amid a tight labor market, make little financial sense for firms. “Employees are going to take the bigger title and go looking for a higher-paid job elsewhere,” he says. “All the practice may be doing is making it easier for people to leave.”