HR is of the universally mistaken belief that a 2% raise is all anyone should get regardless of market conditions. The only way for managers to retain talent is then to promote people and dilute whatever title structure your org has.
That understanding changed how I thought about my own career development after I moved back to an IC role.
If you get someone promoted, they get bumped into a new salary band, and thus get a larger raise — and this is outside the above pool.
From an ICs perspective, I think the takeaway is that getting promoted is almost never the wrong move and should be done as soon and as aggressively as possible, otherwise you're probably leaving money on the table.
Even in the rare event that you manage to get promoted beyond your level of competence and are now struggling to avoid being fired for performance, you just move to another company with your shiny new title and enjoy a higher total comp there than you would have gotten without promotion anyway. It's pretty hard to go wrong.
Companies that have a lot of money, tend to manage that money by dividing it up into different "pots" that are controlled by individual managers. This is just a straightforward way of managing a business, but what's not obvious at first glance is that moving money from one pot to another is hard. If a higher power has decided that the merit increase budget is 2%/y, that could be hard for an individual manager to budge. On the other hand, if you promote someone, you get the full 2% of your new budget in the next annual cycle, so your salary budget has increased by more than 2% for that year.
Another thing is that if you bump a junior up to senior, and that person leaves, nobody will bat an eye at replacing them with another senior.
What I did as an IC was that I articulated my interests to my boss in fairly plain terms. I asked: What's the process for moving up a level? What do I need to do? What goals can we put on my performance review? A lot of people are timid about this, especially as the answer might be No. One of my friends was told by his boss: "You are topped out at your level." Ouch. What I can't tell anybody is what risk they're taking by adopting any particular approach.
I don't think I engaged in any skullduggery or politics. I am in fact enthusiastic about the business, and committed to improving my own knowledge and work. Something I've told my bosses, which is completely sincere, is that I have a lot of mental flexibility, and am happy to be guided by what they think is the best for their department and the business.
It might be that my experience as a manager gave me some cred, since it was clear that I understood the process from both sides of the table.
It might be hard to hear but this is a very good answer from the boss. Your friend was told to start looking for a new job if they want to move up rather than waste their time grinding away at their current job. Much better than being sold false hope.
It really depends on the company though
1) The CEO was consulted on a particular comp plan for the new year with budgets for promotions/new hires/retention etc.
2) The CEO was almost certainly given a "generic" plan that the investors of the company + whatever data the HR team has indicates is warranted.
3) The CEO has to decide between going to bat for the employees with the investors (his boss), pushing back on HR with no data, or just accepting it.
Unsurprisingly the CEO always takes option 3 - everyone is breathing their own exhaust on what a good raise for the year is and the investors will often present a generic comp plan. You'll usually hear things like "we pay the median" or similar to justify this, but the root cause is always the same, bad data driving bad decisions.
Also note that generally these comp plans are made regardless of role. Engineering being more cyclical tends to have rapidly increasing comp on the up-cycle and struggles to match this model. On the flip side we all may be great full that HR doesn't mark comp to market.
CEOs are facilitators. Maybe this is a case of startup culture seeping in but there is always a firewall between the CEO and the rest of the c suite.