Non-transparent remuneration

A lack of a transparent and enforced payment scheme enables discretionary payment to staff or management.

Risk type: Practice

Risk driver: Internal

DESCRIPTION

In a pay system, transparency means providing enough information for employees and managers to understand how salaries are calculated and how the pay system operates. A lack of transparency in remuneration processes can lead to discretionary payments to staff or management and makes it difficult to detect such practices. Moreover, lacking transparency or equality in remuneration can lead to envy and discontent among staff. If remuneration does not depend on staff or management performance, this can also undermine motivation and employee morale. Even if performance-based salary schemes exist, criteria and processes according to which (and by whom) these payments are issued can be non-transparent. This can jeopardize their effectiveness.¹

RED FLAGS

• No remuneration guidelines
• Unmotivated personnel
• Unjustified variations in remuneration of staff members with comparable positions
• Unjustified variations in the remuneration of men and women with comparable positions
• Staff receives or are denied bonuses without justification

KEY GUIDING DOCUMENTS

Equality and Human Rights Commission, 2010, High risk grading and pay practices, Equality and Human Rights Commission, http://www.equalityhumanrights.com/private-and-public-sector-guidance/employing-people/equal-pay/checklists-equal-pay-in-practice/19-high-risk-grading-and-pay-practices, accessed 15.10.2015

GENERAL EXAMPLES

Not enough transparency in executive remuneration²

Location: South Africa

Despite a move toward greater transparency of executive remuneration, workers are becoming more dissatisfied, not less.

The Association of Mineworkers and Construction Union’s (AMCU) recent demand for double pay reflects the reality of this statement.

The gap between high income and low income earners has widened according to the 2013 Executive Directors: Practices and Trends report released by PricewaterhouseCoopers.

The lack of legislative regulation on how executive remuneration is calculated could be one of the reasons why this gap continues to grow in the face of severe economic instability.

The report highlights the fact that the new Companies Act does not specifically outline how directors should be remunerated.

FULL REFERENCES

1. Equality and Human Rights Commission, 2010, High risk grading and pay practices, Equality and Human Rights Commission, http://www.equalityhumanrights.com/private-and-public-sector-guidance/employing-people/equal-pay/checklists-equal-pay-in-practice/19-high-risk-grading-and-pay-practices, accessed 15.10.2015
2. Payle, C., 2013, Executive remuneration transparency is not enough, Skills Portal, http://www.skillsportal.co.za/content/executive-remuneration-transparency-not-enough, accessed 15.10.2015