- Lateral moves can be a gray area. There aren’t many resources and insights for compensation professionals when considering whether an employee’s lateral move within the organization warrants a pay raise.
- Take the big picture into account. When pondering a pay bump, consider the specific worker’s capabilities and competencies, as well as the organization’s overall career framework.
- Are you rewarding or adjusting? In some cases, an “adjustment” may be a better way to describe a change in pay for an employee’s lateral move than “reward.”
When workers consider the pros and cons of making a lateral move within their organization (or at a different employer), there’s no lack of information available to help them in this process. A simple Google search can offer a variety of articles and resources.
From the angle of the employer, however, there are much fewer insights to help compensation professionals suss out the potential ramifications.
In the absence of informal industry standards or universally applied leading practices, compensation pros sometimes turn to their peers for advice. Such was the case during a recent discussion on WorldatWork’s Engage community board (a forum available to WorldatWork members), which explored the sometimes apples-to-oranges challenges of compensating employees for sideways moves within an organization.
The Engage discussion began when a member posed a question: “How do you handle compensation for lateral job changes in your organization?” According to the member, their organization’s guidance states lateral job changes are more for developmental opportunities; as such, a compensation increase is not specifically warranted.
“However,” the member said, “it’s a business decision.” And sometimes, situations can be more complex than a formal or informal policy.
To create more consistency, the member is now considering options such as increasing base salary by x% or giving a spot bonus of x%.
“If you are giving a compensation increase, what is that based on?” the member then asked the forum. “If you are giving a one-time spot bonus, is it different depending on the job level?”
One contributing member said their organization “keeps it simple, usually going up to 5% for lateral moves and up to 10% (or a new minimum) if moving to a higher grade.”
Many involved in this discussion, though, argued for a more nuanced approach that included considering job titles and pay grades, as well as training and advancement opportunities.
Defining the Terms
Let’s take this situation back to the root. What can and should be considered a lateral job change?
Many HR and total rewards professionals would define a lateral job change as one that moves an individual from one position to a similar position within another team or department, and the new position has the same or is at least very similar in scope and the nature of responsibilities as the prior position.
But, according to WorldatWork member James Harvey, managing partner of Alliance Compensation, compensation professionals should also consider what a promotion and a downgrade or demotion looks like in their organization, “then think about lateral moves and how they fit into employee-movement decisions.”
Most organizations, he added, “just think of [lateral moves] as moving to a job in the same salary grade, then think separately what the pay implications are.”
Reward or Adjustment?
As organizations encounter specific instances when lateral moves may warrant a financial reward, many factors should go into consideration of the size of the pay raise, including the worker’s capabilities, competencies and the organization’s overall career framework, Harvey said.
“Look at your total rewards model and ask yourself, ‘Are your actions aligned with your intent?’” he said.
WorldatWork member James King, a principal consultant on talent and rewards at Mercer, stated that “adjustment” – instead of “reward” – may be a better way to describe the change in pay for an employee’s lateral move.
“I say that because ‘rewarded’ implies the money is related to a particular effort [that the employee] provided that benefits the company,” he said. “Lateral moves may require an incentive if [for instance] the employee doesn’t want to take the move, but it isn’t a reward.”
It’s a point that’s supported by a recent poll conducted on LinkedIn by CompTool that asked whether a job change in the same level but with a higher pay grade was a promotion or a lateral change.
According to Justin Hampton, the founder of CompTool and a WorldatWork member, 71% of respondents said it was a lateral change, compared to just 29% who said it was a promotion.
Lateral moves, King added, are frequently seen as a boon for the employee to enhance their career development through a more unique career path than the standard hierarchical one.
“Some organizations will refer to their career pathing as having career lattices as opposed to career ladders to capture the intended lateral movement,” he said.
A Matter of Perception
When it comes to comparing the lateral moves of workers and senior leaders, the pay-bump perception can often be a subtle but meaningful one, Hampton said.
In addition to those listed above, considerations for executive-level lateral moves should also include where a leader may be positioned within the market and within their peers, as well as the impact the move could have on the business, Hampton said.
“If you’re moving someone into a role where there could be a much bigger impact for the business,” he said, “then potentially it could make a lot of sense to make an [upward] adjustment.”
Looking Downstream
Ultimately, the approach for these matters should be agreed upon and established for future situations, and to better understand the potential downstream impacts, King said.
“If not,” he said, “there is the risk of having numerous exceptions that will eventually render the underlying structure ineffective.”
According to King, equally important is to make a lateral-moves policy clear and transparent.
“Employees should know the [premises and] consequences — and management should, too — of making a lateral move,” he said.
Editor’s Note: Additional Content
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