The hidden cost of legacy pay
Everywhere I look, LinkedIn feeds, inboxes, conference panels, it’s all about the EU Pay Transparency Directive. But here’s what we’re not talking about: the hidden cost of legacy pay. The outdated decision are still on your payroll, costing you more than compliance ever will.
When we think of payroll, we think of a stable, predictable (if budgeted well) cost. But in a good number of companies there is a quiet burden: legacy pay. This is the outdated salary decisions, informal exceptions and inherited structures that have somehow survived multiple restructures and leadership changes. They don’t just drain resources, but they distort fairness, ruin trust, and slow companies down. In today’s climate, with companies working to align with the EU Pay Transparency Directive, legacy pay is a ghost few want to acknowledge.
The cost is not just financial, but it is also a cultural one. When employees discover that history dictates pay, rather than the value of the role, you can very easily be breeding resentment and disengagement. In a competitive market where skills matter more than tenure, can we really afford to let the past dictate the future?
Why is legacy pay expensive?
Legacy pay creeps in when salaries are based on history and not value.
The hidden cost of legacy pay is that it is quietly challenging your business. The cost shows up in different ways: talent retention, morale and agility. Top performers will leave when they sense pay inequality. Employees suspect unfairness so their collaboration will suffer. Outdated pay structures slow down recruitment, promotions and workforce planning.
None of these can be seen in the monthly or annual payroll report. It shows up in staff turnover or the amount of people who are quietly not giving their 100% or going the extra-mile.
Transparency is here
The EU Pay Transparency has put a ticking clock on this issue. Unfortunately, in many conversations with business owners and other HR professionals, the directive is being seen as the villain. It is, however, the “loudspeaker”. It is amplifying issues that were already there.
Companies who are still clinging to legacy pay will be forced to explain why two employees doing the same job are being paid differently. The consequence is not only a compliance one but also a reputational one.
Time to reset
Job evaluation is the only sustainable way to address the hidden cost of legacy pay. This means that ad-hoc pay decisions are no longer an option.
It is the actual value of the job that will matter, and this is what job evaluation does. It’s not bureaucracy but a structured way to assess roles objectively, create transparent pay bands and future-proof against transparency rules since it links pay to the role value.
We need to think of job evaluation as a reset button. It will not patch over legacy pay problems, but it will clear the confusion legacy pay creates and gives you a framework to build fairness into your compensation structure.
When legacy pay means overpaying
During a recent meeting with a client, the employer very rightly questioned what’s going to happen if, once a job evaluation is done, it transpires that an employee is being paid well above the value of their role. The job evaluation is going to bring this up and the numbers won’t line up.
It is an uncomfortable reality, and it is where many employers freeze. Reducing the basic pay is illegal and ignoring the gap undermines fairness and credibility.
There are smart ways to deal with this:
- Restructure the role: realign responsibilities more closely with pay level by expanding scope and assigning higher-value tasks. (of course, employees might not always accept or see that they are being overcompensated. In those cases, it’s important to frame the conversation carefully. Explain that the job evaluation process is designed to assess roles effectively, and that by expanding their responsibilities, you are aligning their contribution with the pay they are already receiving. This positions the change as an opportunity rather than a correction.)
- Red-circle pay: protect current salaries but freeze increases until the role’s band catches up and phases out the discrepancy over time.
- Future-proof: Most importantly, make sure the next person employed into that role comes in at the evaluated role and not the legacy one.
Handled well, this isn’t a punishment. It is restoring fairness while respecting the employee. It will be this balance that will build trust.
Time to lead
I have seen a good number of companies who have already started this process. Companies that act now will avoid the hidden cost of legacy pay and instead build structures that attract and retain talent. Those who don’t will be left trying to explain awkward pay gaps to employees who will no longer accept “that’s just how it is”.
At SurgeAdvisory we have seen how transformative job evaluation can be. It’s not a compliance exercise but a competitive strategy.
Legacy pay is an anchor. We need to cut it loose now before it drags us down.
About the author
Maria Bartolo Zahra is Managing Partner and HR & Compensation Specialist at SurgeAdvisory. She has over twenty years of human resources and business advisory experience.