Inconsistency when adhering to pay principles has a dramatic impact on corporate costs and staff retention risks, according to new research published by global HR consultancy Mercer.
Its findings estimate that over-remuneration of UK employees adds on average $5,400 per employee to the annual wage bill.
In addition, paying staff too little adds risk equating to around $1,300 per employee to an organisation’s bottom line.
Mercer analysed 4,990 employees from 16 UK multinationals earning salaries of up to $250,000 and matched the data against Mercer’s proprietary database containing 40,000 data points from 191 organisations.
The report suggests that the pay inconsistency pivots around the contribution of line managers, who are often less discriminatory in distributing pay increases than their business would like them to be.
This commonly stems from a lack of clarity on the guiding principles for making awards and a natural tendency for them to ‘generously’ reward mediocre performance, leaving them with insufficient budget to recognise top performance.
Chris Johnson, head of Mercer’s Human Capital Business, said: “Employees know that some of their colleagues are over-paid and others are underpaid: this undermines high performance and employee engagement.
“We support the trend of giving managers discretion over the pay of their people. Companies need to grasp the nettle of communicating clearly to manager and employee alike about pay, and to analysing their own data about how pay policies are operated in practice. Information and insight is the key to effective management of pay and help drive high performance and employee engagement.”