Companies waste £4,000 per employee due to pay inefficiency

UK companies are wasting almost £4,000 per employee – or 8% of their payroll costs – by failing to deliver their pay policies efficiently, research has revealed.

Analysis of corporate pay rates, by HR consultancy Mercer, shows that over-remuneration of UK employees adds on average £3,262 per employee to the annual wage bill.

Under-payment also adds risk equating to around £800 per employee to an organisation’s bottom line, the report shows, as it leads to disgruntled and demotivated staff.

The inconsistency pivots around the contribution of line managers, who are often less discriminatory in distributing available pay increases than their businesses would like them to be, Mercer said.

Chris Johnson, head of Mercer’s human capital business, said: “Our research shows that companies spend nearly 40% of their revenues on employee pay, and yet they fail to deliver their pay policies effectively. Employees know that some of their colleagues are over-paid and others are under-paid: this undermines high performance and employee engagement.”

Compensation is a company’s biggest expense, yet it’s typically the most poorly managed, according to Johnson. He urged HR professionals to show they can strengthen the governance of this cost and deliver substantial benefits to their organisation.

Mercer analysed 4,990 employees from 16 UK multinationals earning salaries of up to £150,000 and matched the data against Mercer’s proprietary database containing 40,000 data points from 191 organisations.

Research last year revealed that nearly two-thirds of HR functions had failed to evaluate the return on their reward schemes, despite economic pressures.

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