Total Compensation Growth and Career Advancement

Compensation growth is fundamentally linked to career path advancement. Merit-based raises offer a modest bump, but the largest compensation jumps occur when moving up along a job hierarchy. One might initially expect the total compensation increase to be roughly equivalent at all stages of a career path, but there can be a surprising amount of disparity at different levels. To understand this better, we will show the differences in total compensation growth rates as one progresses through organizational strata (i.e., job levels). Understanding the trends present throughout a career’s path advancement is essential when planning for success.

Organizational Hierarchy

ERI’s research has identified general hierarchical levels within organizations. These levels are commonly seen in organizations across a wide range of industries and are presented below:

• Entry
• Technician & Para-Professional (might require certifications or formal training)
• Professional (usually requires formal higher education)
• Supervisory (includes positions supervising all previous levels)
• Middle Management
• Director
• Vice President
• Top Executive

These occupational categories represent a clear hierarchy of levels, with a notable exception within supervisory positions. Some career paths move in a straight line through the first three levels, but some positions in these levels will jump straight to the supervisory level. This is dependent on several factors, including education requirements, job family, industry, etc.

We could examine each combination of these levels when analyzing progressions through organizational strata, but we will only look at the standard hierarchy and the notable jumps to supervisor in our analysis. We identify the jobs belonging to each progression using collected data on each job’s natural next position (as typically seen in a linear career path). The progressions are as follows:

1. Entry -> Technician & Para-Professional
2. Entry -> Supervisory
3. Technician & Para-Professional -> Professional
4. Technician & Para-Professional -> Supervisory
5. Professional -> Supervisory
6. Supervisory -> Middle Management
7. Middle Management -> Director
8. Director -> Vice President
9. Vice President -> Top Executive

Progression Growth Rates

Now that we have a better understanding of the different job levels, let’s examine the raw growth rates in each of these progressions. We will be using the median in place of the mean for our measure of centrality due to the large number of outliers in compensation data. Table 1 summarizes the compensation growth rate (expressed as a percentage increase of the lower salary) for each progression.

Table 1: Median compensation growth rates across individual organizational progressions

This table offers support to the idea that total compensation growth does not stay constant across organizational strata. In fact, the most striking feature of the data is the variability, with growth rates ranging from 26% to 80%. At first glance, there doesn’t seem to be any identifiable pattern, but there are two important trends underlying these data.

Fig. 1: Ordinary least squares regression line through standard linear level advancement

A regression analysis indicates that growth rates tend to decrease as the hierarchical level increases (see Figure 1). Many might think that the inverse would be true. However, it is important to remember that this is the percent increase rather than the magnitude of the raise itself. The biggest exception to this trend, namely progression 7 (Middle Management to Director), is skewed by outliers (see Figure 2). This downward trend means that, as one moves up the career ladder, the employee can expect his or her total compensation growth rate to consistently decrease. The amount of each increase may continue to rise, but on average, the raise as a percent of previous compensation will tend to grow smaller.

Fig. 2: Distribution of compensation growth rates when moving from the Middle Management level to Director level. There is a notable positive skew to the distribution.

The other observable trend is that the largest growth rates are observed in progressions with the largest differences in skill sets. We are not referring to the complexity or value of the skills, but rather the similarity in required skills from one job level to the next. For example, director-level positions moving to the VP level will merit less compensation growth because the required skills are similar, and the starting compensation is high. In contrast, para-professional positions that allow for advancement into professional positions will see much larger growth rates due to higher skill, knowledge, and education requirements.

The growth rates in Table 1 make a lot more sense after examining these two trends. As one moves higher through a job level hierarchy, his or her compensation growth rates will tend to decrease, whereas moving into a higher-level position with a significantly different skill set will usually merit a relatively higher compensation growth rate. These trends alone allow us to view compensation growth as a function of job level/starting salary and skill set differential. Although this serves as a good tool for understanding total compensation growth at different job levels, it is still a highly oversimplified model.

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