Perverse Incentives of Retrospective Promotions
Promote people in hopes that they will perform well at the higher level?
Wait until you’ve seen consistent performance at the higher level and then promote them?
Both policies have pluses and minuses. Prospective promotions can be motivating but raise the specter of having to demote or even fire someone who doesn’t perform. Retrospective promotions make it safe for folks to reach for a bigger job but can feel dangly-carroty.
I’ve been thinking about retrospective promotions lately, as most companies I’ve worked for use that policy (which always makes me think about the opposite). In particular, retrospective promotions introduce a perverse incentive to delay promos to avoid increasing compensation.
"I know you're doing a great job as a senior engineer but we just want to see one more semester of that performance before promoting you. We'd hate to have you fail at the higher level." In the meantime you doing level N work & getting paid for level N-1.
As an executive(-ish), I don't actually rub my spotty gnarled hands in glee at getting more performance for no more compensation. I don’t think the executives & managers I work with do either. However, I know that incentives matter. I don't even want to be tempted. I'd rather align the incentives.
Here’s a tweak: when the promo comes through, pay the difference in compensation retroactively. You would have gotten $10K more at level N for the last 6 months? You got promoted by working at level N for 6 months, here’s that $10K you earned.
As an employer. you got the performance, why wouldn't you pay for it?