Annual Promotion Rates by Level: What is The Optimal Target Promotion Rate?
I recently heard from a Total Rewards leader at a late stage, pre-IPO tech company. They remarked that their company’s promotion rate was 17% in the most recent merit cycle, and roughly ~34% on an annual basis.
You read that right. 34% means that about a third of employees at this company are promoted each year!
Let’s take a step back. Just how high is a 34% annual promotion rate? How do promotion rates stack up across Pave's customer base? Here’s what the data has to say.
What is the Average Annual Promotion Rate at Tech Companies?
We analyzed the benchmarks for 245,000 USA-based employees across 1,125 Pave customers with at least 100 employees. We then looked at the promotion rates over a 12-month period from mid-October 2023 to mid-October 2024. The promotion rate here is calculated as the percent of employees promoted against the total number of employees at the beginning of the time period.
As we can see, the average promotion rate for employees across USA-based tech companies in Pave’s dataset is 14% over the past 12 months.
Interestingly, the promotion rates vary largely by level. Specifically, lower levels have substantially higher promotion rates.
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Analyzing Your Promotion Rates
These findings raise a couple of key takeaways for compensation leaders:
- Drill down to your company’s promotion rates by level
Only focusing on the company-wide promo rates without considering level is likely an oversimplification. You should be asking yourself, “What are my company-wide promotion rates by level?” to assess the health of your merit system against market benchmarks and identify areas where things might be out of whack.
- Promotion rates can relate to salary range width
We’ve recently looked at salary range widths and pondered what the optimal range width is given many competing interests at play. One potential strategy is to have narrower range widths for lower levels (where promo rates are higher) and then increase the range widths for more senior levels as the median tenures before the next promotion increase.
Promotion Rates at High-Growth Companies
This begs the question of whether companies with faster headcount growth also have higher promotion rates. For example, if you promoted 30% of your employees last year but also tripled headcount, is this aligned with market norms?
Based on our analysis, companies growing at a faster rate indeed tend to have higher promotion rates. Companies that increase headcount (> 110% YoY change) have an 18.3% median promo rate.
On the flip side, companies that decrease headcount (< 90% YoY change) see an 11.5% median promo rate, while companies with a roughly flat headcount (90-110% YoY change) have a 14.9% median promo rate.
Have thoughts on these findings? Join the conversation on LinkedIn.
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