Employers warned about risks of not having pay structures

'You could become trapped in a situation where pay becomes a tool'

BY Dexter Tilo 17 Jul 2024

Not having pay structures within an organisation can be risky and could trap employers, a whitepaper has warned.

A pay structure decides how much people are compensated based on their performance, experience, credentials, and job roles.

Strategic Pay's white paper said having a robust one at work is "not a panacea" nor it will transform the business overnight.

"However, not having one in place is risky, and you could become trapped in a situation where pay becomes a tool," the report warned.

Citing the Compensation Cafe, the paper warned that not having a pay structure brings about the following risks:

Managers trying to give away as much money as they can to as many as possible without much consideration on distinctions between individual performances
Organisations inflating job titles that could distort organisational structures just to reward employees
Overrating performances during salary reviews, where they are likely to reward activity over results
Encouraging the attitude of entitlement by granting everyone an annual merit raises or bonus
Relying on counteroffers to stop employees from resigning

Strategic Pay said a pay structure designed with the needs of the organisation first is the "cornerstone of good remuneration practice."

"It promotes fairness and equity in how you pay people, and reassurance to staff that there is a system in place," it said, adding that it also identifies priority areas that need to be addressed.

"Finally, it allows for targeted use of your wage budget for annual salary review, particularly when budgets shrink."