Companies Turn to Internal Promotions Over Pay Hikes to Retain Talent Amid Tight Budgets

With hefty pay hikes from the post-pandemic period easing, companies are increasingly relying on internal promotions to retain talent and sustain workforce morale. According to data shared by professional services firm Aon, promotion rates among a surveyed group of 1,200 companies reached 11.1 per cent, marking a 70 basis point increase from 10.4 per cent last year. Promotion rates are measured as the share of promoted employees relative to a company's total workforce.

Amit Kumar Otwani, Associate Partner for Talent Solutions at Aon India, noted that the talent market has seen increased fluidity, thereby raising the relevance of career progression opportunities. However, these promotions are not necessarily accompanied by significant salary increases. Aon's data indicates that the compensation bump tied directly to promotions—over and above standard yearly wage hikes—has stabilized at approximately 12 per cent over the past two years.

"Higher promotion incidence is therefore not translating into materially higher promotional increase percentages," Otwani stated. This trend emerges during a challenging business environment and tightening budgets, which have resulted in more conservative salary increments alongside relative increases in attrition.

Upasana Raina, Director of Human Resources at GI Group Holding India, explained that rising attrition necessitates accounting for the recruitment, onboarding, training, and lost productivity costs tied to replacing employees. She noted that internal promotions and role expansions help mitigate these operational challenges.

Aon's data further revealed demographic differences in promotion rates. The promotion rate for male employees increased from 10 per cent to 10.2 per cent, while the rate for female employees shifted more widely from 11.2 per cent to 12.4 per cent.

Meanwhile, the integration of artificial intelligence is flattening traditional talent pyramids and altering internal promotion structures. Sachin Alug, CEO of NLB Services, pointed out that with fewer traditional managerial positions available, organizations are developing alternative growth paths through specialist roles, cross-functional responsibilities, and project leadership. Consequently, promotions are placing greater emphasis on skills, measurable outcomes, and broader responsibilities rather than tenure alone.

"The shift toward higher promotion rates without proportional compensation bumps reflects a pragmatic approach by businesses managing tighter budgets in a shifting economic landscape. As companies navigate attrition and the structural impacts of automation and AI, offering non-monetary career progression and role expansions becomes essential. For founders and business leaders, balancing cost controls with clear internal growth paths is vital to maintaining workforce engagement and minimizing the high costs associated with employee turnover." — Dr. Shishir Gupta, Founder & CEO, StartupLanes