How Do I Explain a Pay Discrepancy to a Newly Promoted Director? Need Advice!

Here's the dilemma.

Our policy limits promotional raises to 5%. We have an employee who has done great work and been promoted 3 times in the last 5 years and is now a Director (reports directly to the CFO/CEO).

Due to the cap on promotional raises, this employee now makes $13,000 less than one of his direct reports he will inherit in the latest position, and our director of compensation will not do anything. I have a meeting in a couple of weeks where I have to explain this to the employee.

HELP!

Generally, there are pay ranges for each position, i.e.:

Level 1: (Min.) $25,000 - (Mid) $35,000 - (Max) $45,000

Level 2: $40,000 - $55,000 - $70,000

Level 3: and so on....

With this scheme, a top performer is adequately rewarded for his/her performance and contribution to the organization. A promotion is a recognition of excellent work and a motivator for others in the organization to emulate.

A promotion should not entail added and more difficult responsibilities while being "demoted" in terms of salary.

Arrange a meeting with the Director of Compensation and ask the question: "What would it cost, in terms of: employee morale (who would want to work hard for a promotion if subordinates were making more money; how would such a situation impact the newly promoted employee's authority; What kind of problems will the organization have in the future trying to recruit and/or promote top talent); perception of the organization in the marketplace (Why couldn't they retain a top performer), and the employee's perception of his worth to the organization (enthusiastic - work harder in a new position or disappointed - just go through the motions, get the experience at the higher level, until it becomes unbearable, then leave) to replace him/her?

If the Director is inflexible and will not consider an exception (these issues should be handled on a case-by-case basis), then you should appeal to the CFO/CEO with the same questions.