Are You Paying Staff Too Much?

Clare Parkinson

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30 May 2019

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You’re a good boss, and that means you pay a fair wage. But what should you do when you’ve been a little too generous with employees’ salaries?

Why you might be paying too much

There are many reasons why you might be paying your employees above the market rate for their role. It happens more often than you think…

For example, when you take over a business, you have to honour the contracts of your new employees. That means you’re obliged to pay their salaries, even when they’re too high.  

Or, if you reward long-term staff with pay rises each year, you’ll soon find that workers’ wages no longer match their job roles.   

And then there’s the natural ebb and flow of the labour market. Average wages can change radically over a short period of time.

For example, between 2011 and 2016, the average pay for advertising executives fell by 14%. The average pay for shelf-stackers fell by 9%. And the average pay for some medical professionals, such as radiographers, fell by 8%.

How to tell if you’re paying too much

The only way to tell if you’re paying too much is to review and benchmark staff pay.

That means researching the wages that UK companies pay their workers. This gives you a snapshot of the market value for certain roles.

Once you know this, you can set the right salaries for new starters and identify the anomalies that already exist in your business (we’ll tell you what to do about them shortly…).

Like most research, the more accurate the data, the more accurate the results. But collecting and analysing this information is a big task. And it’s not always practical to do it yourself.  

That’s why Croner offers SalarySearch, an easy to use online tool that lets you search 50,000 job records, across 34 sectors, over 154 areas of the UK. SalarySearch is the UK’s leading salary comparison database and gives you instant insight on the market rate for any role, in any sector, location and size of business.

But what if you use SalarySearch and find out that you’re paying staff above the market rate? Does it matter? If your business is doing well, why not keep rewarding staff with high salaries? Here’s why…

It’s not (just) about the money

According to a study by Gallup, salaries alone don’t lead to better staff performance. And other research suggests that money actually demotivates staff.

No one’s entirely sure why, but it could be because money suppresses our “intrinsic” motivations. These are the internal rewards we get from work, such as enjoyment, curiosity, or self-worth.

That means a great worker who loves their job will probably perform just as well earning a fair market rate as they will on a mega salary. Likewise, a high wage packet is no guarantee of top performance.

Plus, overpayment can stagnate your workforce. For example, a worker earning above the market rate is unlikely to leave their role, even if they stop enjoying it.   

And then there’s the matter of profit and cash. When business slows down and staff costs stay high, you’re forced to make tough choices about the size of your workforce.

So, setting the right wages based on reliable market data is in the interest of all your staff. The bad news is, it’s not easy to force staff to take pay cuts.

That’s because it’s hard to change the terms of someone’s contract when their role hasn’t changed. It’s a long process and there are lots of legal risks involved. But there is a way to tackle sky-high salaries at work, without risking legal action…

Manage pay and performance across your workforce

First, use your benchmark data to set pay bands for roles within your business. Make sure that new recruits are coming in on the correct pay from day one.

Next, manage the performance of your overpaid employees. Set objectives and targets for staff on high wages to make sure they stay motivated and deliver results for your business.

And although you can’t cut their wages, you don’t ever need to increase their salary. Use your market analysis to manage pay rises for staff whose wages exceed their pay bands.

You can still reward high-paid staff for their hard work, but consider offering non-cash benefits—such as flexible working hours or extra holiday.

And keep giving your best staff positive feedback. It improves engagement, boosts performance, and ultimately helps you get your money’s worth from overpaid employees. 

Speak to an expert

Setting pay for staff isn’t easy. That’s why Croner’s pay & reward experts support you in setting the right remuneration package for all your workers—from the delivery driver to the CEO.

Speak to a pay & reward expert today. Call 01455 858 132 or request a call back here.

About the Author

Clare Parkinson has over 20 years’ experience in the Croner Reward business. As Business Manager, Clare leads a team of Reward Consultants who specialise in the delivery of pay and grading related advice, including tailored pay benchmarking and gender pay reports.

Over the years, Clare has contributed to various industry publications on topics such as gender pay, executive remuneration and market pay trends.

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