The Pay Whack-A-Mole

Unfortunately for many organizations, pay plans are also one of the issues they have the most trouble getting right. Prior to the pandemic, solving gender-related pay-gap issues was a major concern. Then, during the Great Resignation, leaders had to manage the fact that new recruits’ salaries often exceeded those of existing employees with the same, or more, skills and experience. Now companies are having trouble even talking about their pay practices. A majority of organizations, 61 percent, believe that most employees do not understand the current reward strategy, according to a 2024 Korn Ferry survey of pay professionals.

All those big-picture issues are on top of the  annoying mistakes that can pop up at companies big and small—including delinquent benefit contributions, delayed paychecks, incorrect tax deductions, and other back-office compensation issues—frustrating employees of all levels. More than half of respondents in the ADP survey said they’ve had errors in their paychecks. “Salary is by far the most complex topic for corporations to manage,” says Adrian Dinca, director of HR for EMEA for power-management company Vertiv.

The question, however, remains: Why? Employee compensation is often an organization’s largest expense (as much as 70 percent of revenues for some firms), so one might think that companies would focus on solving it efficiently. Yet, experts say that is consistently not the case. Pay problems often are put on the back burner when firms face pressing issues, such as a shortage of talent. During the Great Resignation, for instance, many firms willingly paid whatever it took to attract new talent or retain existing employees, even if it meant upending their salary structures. HR departments, which handle compensation issues, are typically overwhelmed with other problems, such as hiring the right talent, solving internal workplace issues, or writing rules around office attendance. And when a company cuts costs, HR, as a group, is often hit first and hardest, resulting in a reduced staff managing the same workload. Beyond HR, many supervisors either don’t have the knowledge—or skill—to talk to their employees effectively about pay.

Will things get better? According to Tom McMullen, leader in Korn Ferry’s North America Total Rewards expertise group, there is a growing sense in some C-suites that neglecting pay structure can be a significant drag on earnings, not to say morale. Firms that randomly make counteroffers when an employee threatens to leave are typically losing significant sums, he says, as well as creating tensions among workers earning less for the same role. Sudden changes in other pay areas matter too: More than half of pay professionals Korn Ferry surveyed said that making changes to address pay equity is disruptive to existing employees, in one way or another; 22 percent said those changes can lead to an increase in employee turnover. “It comes down to having a better and fairer reward system that is communicated well to employees,” McMullen says.

Indeed, new laws about pay transparency around the world haven’t created enough openness yet, experts say. Only 17 percent of firms have implemented a pay-transparency policy, while 37 percent are waiting either for more laws on the subject or for best practices to emerge, according to the Korn Ferry survey. That, says McMullen, needs to change. If pay systems aren’t more open, “you won’t get the talent in the door, and then you’ll have a tough time retaining who you have.”