Employee development isn’t strictly vertical. Individuals can slot into new departments, take on a management role, or opt to follow a long-term individual contributor track. People teams might anecdotally understand how talent flows through their organization, but there’s a simple way to measure this using HR data.
Enter career path ratio, an HR metric that compares your company’s share of promotions versus lateral moves. Knowing your company’s career path ratio can inform long-term workforce planning and help you identify employee development roadblocks. To calculate your career path ratio, simply divide total promotions by all role changes (lateral moves and promotions) within a set period.
For example, if your company had 10 promotions and 15 lateral moves, your career path ratio would be 0.4. To give yourself ample data to work with, consider starting with a lookback period of at least a year. Your company’s size and the overall frequency of role changes will dictate how far out your career path ratio’s timeframe needs to be.
Career path ratio tells you how employees move within your company, be it via lateral moves or promotions. Keeping tabs on both is critical, as your org chart can quickly become too “top-heavy” if promotions are left unchecked. If you have too many mid-level managers, for example, aspiring leaders might feel impeded in their growth. On the flip side, others might want to expand their expertise by trying out different kinds of roles within or outside their department.
“Organizations often assume that promotions are the only way to reward employees for their performance. Each individual is different, and there is no one-size-fits-all solution for ensuring employee satisfaction and retention,” said Jessica Lim, HR Manager at LiveCareer. “Climbing up the organizational ladder might be motivating for some employees. For others, especially those who have been with the organization for a long time, a new functional area is often much more exciting.”
As a general rule, a healthy career path ratio is around 0.25 — in other words, about four lateral moves for every promotion. Why? According to HR research firm InfoHRM, between 50% to 70% of workers at any given organization have reached their promotion ceiling. When movement is strictly vertical, these individuals effectively become “stuck” in their roles. That said, if your ratio is significantly lower than 0.2, it might mean you’ve got an upward mobility issue.
“While lateral movements mean that employees are furthering their development with new roles and responsibilities, too much lateral movement can indicate that employees are moving because they don't see upward progression potential, or managers may be choosing to hire externally for top roles instead of hiring internally,” said Kevin Lee, CEO of JourneyPure.
Conversely, if your ratio is 0.5 or more, your organization might be giving too many promotions. In cases like these, you could have a surplus of middle managers — or your leadership team might be discouraging employees from making lateral moves altogether. In cases like these, leaders might be practicing what’s referred to as “talent hoarding,” or blocking an employee’s potential move because they’re considered indispensable. These individuals might receive a promotion within their track but still grow bored with the work, leading them to eventually leave the company.
While career path ratio is a helpful metric to have on hand, calculating it isn’t easy for organizations with loose hierarchies. Knowing what constitutes “up” versus “left to right” on a career lattice requires a clear methodology of how roles are ranked. While your first inclination might be to use compensation as a reference, that won’t always work. Pay can vary widely within the same job tier and tends to be influenced by outside factors like market rate and geography.
That’s where job leveling comes in. Job leveling, sometimes called job classification, is a system used by HR professionals to define roles, develop career pathways, and set hierarchies within an organization. For example, job leveling within an HR team might look like:
“Calculating career path ratio requires you to know your company structure to start with,” said Ian Kelly, VP Operations at NuLeaf Naturals. In addition to helping HR teams get started with career path ratio, having defined job levels gives employees clarity into what their next step in a role might look like. Making job tier information available to the whole company also gives individuals a greater awareness of lateral opportunities.
“A company that doesn't track this is bound to be blind to the growth opportunities it offers,” Kelly said. When used together, job levels and competency matrices help everyone understand exactly what’s expected of them, how they fit into the organization, and what they need to do to get a promotion or transition into a new role.
No matter your career track, talking about “what’s next” seldom comes naturally. Lattice’s performance management software doesn’t just make those conversations easier, it makes them more effective. Next steps are never in doubt and employees always know what milestones they need to reach next.
Over 1,850+ organizations use our people management platform to drive performance, engagement, and growth. To see how we can help your organization, schedule a product tour today.