...When setting pay rates, compensation managers must take into consideration the employees' perception of fair, equitable compensation. Pay Equity: Internal and External Considerations KENT ROMANOFF Associate Hay Group, Inc. KEN BOEHM Labor Economist Pacific Telesis EDWARD BENSON Vice-President, Hay Group, Inc. EqUity (or fairness), a central theme in compensation theory and practice, arises in many different contexts. Here, for example, are some major areas: • The legal and economic issue of equal pay for similar work (comparable worth). • Pay differences caused by external competition or market pressures. • The fairness of individual wage rates for people who are doing the same job. • Individual employee views of their value relative to their pay. A company's approach to equity is as important as the actual pay programs it im plements. Companies typically emphasize external equity in the design of their com pensation structures. This focus on external equity enables a ,company to develop compensation structures and programs that are competitive with other companies in appropriate labor markets. Perceptions of equity can also influence a company's abil ity to attract, retain, and motivate its employees. Employee perceptions of equity and inequity are equally important and should be carefully considered when a company sets compensation objectives. Employees who perceive equitable pay treatment may be more motivated to perform better or to sup port a company's...
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... Identify advantages and disadvantages of internal and external equity for the organizations. Explain how each plan supports that organization’s total compensation objective and the relationship of the organization’s financial situation to its plan. Format your paper consistent with APA guidelines. Introduction All organizations value the compensation as a vital factor when trying to recruit and retain the appropriate staff. This will also help reduce turnovers within a company. The importances of external and internal equity are highly recommended. This paper will illustrate the total compensation plan for an organization focused on external equity and internal equity. This paper will also identify the advantages and disadvantages of internal and external equity for the organizations. By doing this I will explain how each plan supports the organizations total compensation objectives as well as the relationships of the organization’s financial situation to its plan. Internal and external equity Intel is an organization that practices using internal equity. Internal Equity method undertakes the job position in the organisational hierarchy (2007 Payroll.Naukrihub.com). This process aims to help balance the compensation provided to a job profile. This helps ensure that there is fairness between job rankings, job classifications, and level of management. Intel using this to ensure that their employees are being compensated fairly...
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...Internal and External Equity Comparison HRM 324 April 28, 2014 Internal and External Equity Comparison` When reviewing a successful companies' portfolio to determine what makes them more successful from the next, you will find the company will have a strong compensation plan. A Compensation Plan is one of the more important aspects in the organizational environment. Before formulating the compensation plan based on internal and external equity, it is important to first understand what internal and external equity refers to. External equity is said to be prevailing in the organization when the employees are rewarded with fair compensation to those who perform similar jobs in other organizations. External equity persists when an organization's pay rates are equal to the rates prevailing in the organization's market. (Lederer & Weinberg, 1995) Internal equity is present when the employees are being provided with fair wages relative to the value of their jobs within the organization. Responsibility, rewards and compensation provided to an employee should be in equity with the other person working at similar position within the organization. When formulating an effective compensation plan that is based on the internal equity, it is important to first consider the basic factors. The first step is to understand the types and varieties of jobs being performed by various employees within the organization and also the required level of skills, education...
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...Internal and External Equity Comparison Total compensation means to reward employees for their labor. Compensation packages in today’s market can range from low to high depending on the company’s goal. Compensation packages have the ability to attract a certain type of candidate to apply for a specific position within an organization by the way they are designed. With the economy constantly changing and somewhat unstable, it is important for a company to offer a compensation package geared towards not only the employee but as well as the economic changes. Two types of equities plan an organization can use are, internal and external equity. Total Compensation Internal Equity Internal equity exists when employees in an organization perceive that they are being rewarded fairly according to the relative value of their jobs within an organization (hrcouncil.ca). Internal equity is a good way to ensure that employees receive fair wages and cannot file lawsuits against the employer. Although two employees functioning at the same level in the organization, it is possible for them to draw different pay. J.P. Morgan, an American Capitalist, is said to have a rule regarding investing into a company. Mr. Morgan stated that he would not invest in a company that pays the CEO over 50% more than the next level executives (Compensations Standards 2015). The corrective approach is addressing the "internal pay equity check" as did the companies like DuPont and Intel when they...
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...Internal and External Equity Comparison Edgar Martinez HRM/324 September 10, 2012 Annette Clark Davis Internal and External Equity Comparison In today’s competitive globalized economy, an organization’s approach to equity and its perception of equity can affect an organization’s ability to captivate, retain, and motivate its employees. Therefore, external as well as internal equity play an important role in an organization’s design of its compensation structure. In this essay, it shall examine the total compensation plans for the Home Depot Corporation and IBM Global Services, focusing on internal as well as external equity. Additionally, it shall also review the various advantages as well as disadvantages of internal and external equity for both organizations. Finally, it will provide an explanation to how each plan supports each organization total compensation objectives as well as the relationship of the organization’s financial situation to its plan (University of Phoenix, 2009). Internal and external equity An Organization that notably uses internal equity to form its pay structure is the Home Depot. The Home Depot’s internal equity exist because of its pays wages and hiring processes designed to fit each store budget, instead of hiring people with the skills to do the job at a market rate pay. The Home Depot’s decentralized stores use an elitist compensation system with different compensation plans by organization level and incentives offered only to...
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...Internal and External Equity Comparison HRM / 324 Recruitment, retention and reduction of staff turnover are some of the key things that many organizations focus on when they begin to put together the “fundamental glue” of the company, the Compensation Plan. Those things in mind, both the internal and external equity considerations, and how they effect an organization should not be dismissed. Compensation packages are arguably the most valuable piece of information to an organization as it begins to draw up a package geared at attracting and retaining suitable employees. A well-constructed compensation package has the ability to ensure that employees are not only attracted to the job in question, but are also willing to stay with the organization for an extended period of time after the job is secured. Proven to be highly beneficial to an organization especially by way of cost effectiveness is the ability to recruit effectively, higher the appropriate candidate, maintain a high retention rate for employees, and increase productivity. In this paper, internal and external equity is explored, including the advantages and disadvantages of both, an explanation of how the plans support an organizations total compensation objective and how they relate to the organization’s financial situation. Internal equity refers to the Employees' perception of their responsibilities, rewards, and work conditions as compared with those of other employees in similar positions...
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...Internal and External Equity Comparison Internal and External Equity Comparison Edgar Martinez HRM/324 September 10, 2012 Annette Clark Davis Internal and External Equity Comparison In today’s competitive globalized economy, an organization’s approach to equity and its perception of equity can affect an organization’s ability to captivate, retain, and motivate its employees. Therefore, external as well as internal equity play an important role in an organization’s design of its compensation structure. In this essay, it shall examine the total compensation plans for the Home Depot Corporation and IBM Global Services, focusing on internal as well as external equity. Additionally, it shall also review the various advantages as well as disadvantages of internal and external equity for both organizations. Finally, it will provide an explanation to how each plan supports each organization total compensation objectives as well as the relationship of the organization’s financial situation to its plan (University of Phoenix, 2009). Internal and external equity An Organization that notably uses internal equity to form its pay structure is the Home Depot. The Home Depot’s internal equity exist because of its pays wages and hiring processes designed to fit each store budget, instead of hiring people with the skills to do the job at a market rate pay. The Home Depot’s decentralized stores use an elitist compensation system with different compensation plans...
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...CRITICAL ESSAY: COMPENSATION EQUITY IN CHINA Hou Guangjian ABSTRACT In China presently, employees receive different compensation according to all kinds of ad hoc definitions of external equity, internal equity and individual equity. Consequently, employee attitudes toward work and social status are affected. If the government would provide people with access to better education, legal measures that guarantee fair competition, and training opportunities to people who have need, the Chinese people would have greater reason to believe that improved compensation equity will be realized in the future. INTRODUCTION Two years after the death of late chairman Mao Zedong, Deng Xiaoping launched century. During the past twenty-five years, the country has witnessed tremendous gains in economy and social wealth in general. Although, on the average, people are leading a much better life, the gap between rich and the poor is becoming larger. As a large developing country in a transition period from a planned economy to a market economy, China at present has to adopt a de facto policy of “letting a few people get rich first” to stimulate enthusiasm and initiative for the rest of the population. Thus, the usual egalitarianism -- what Chinese term the “Large Bowl” -- has been smashed. People working at similar jobs receive different compensation. Various ad hoc definitions of external equity, internal equity and individual equity influence compensation and, consequently, employee attitudes toward...
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...DISCUSSION ASSIGNMENT 1 5 MARKS WORTH 5% OF THE OVERALL GRADE FOR THE COURSE INTERNAL EQUITY (ALIGNMENT) AND EXTERNAL EQUITY (COMPETITIVENESS) After reviewing the Wilson Brothers Case Scenario, as Director of Human Resources for the organization, what conclusions can you draw with respect to the status of the company’s compensation strategies that are currently in place? What would you do to begin to address this situation? (3 Marks) Provide Constructive Feedback to at least two other student’s postings. (2 Marks) HINT:-reference both internal equity (alignment) and external equity (competitiveness) in your response. NOTE:-this Discussion Assignment will be marked on content, analysis, direct references to the readings, the overall professionalism of the presentation and constructive feedback to other students’ work. The organization’s strategies seem to be outdated, reflecting a different period in time. It does not seem that government policies, laws, and regulations are being followed and/or up to date. There are no consistent policies on employee relation issues and some employees’ fear of getting on the owners bad side would cause them to be terminated. There are also no policies on employment equity and pay equity. This could cause legal issues if they are not following the proper legislation set out by the government. There is also no pay structure and therefore, no differentials. Hiring salaries are negotiated which leads to no salary range for jobs within...
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...Part 1 (Short Response) 1- How do differing perspective (society, managers and employee) affect the views of compensation? • Societal perspective: compensation is viewed as a measure of justice as well as a cause of increased taxes and price increases. • Managers: view compensation as a major expense and a means to influence employee behaviour. • Employees: view compensation as a return in an exchange with their employer, an entitlement, or a reward. 2- Explain the difference between base pay and performance pay. • Base pay: Base pay-wage or salary is the monetary compensation an employee receives for the work performed. For example, the base wage for machine operators may be $18 an hour but some individual operators might receive more because of their experience. • Incentives (or variable pay): Incentives tie pay increases directly to performance. It differs from merit increases. Incentives do not increase the base wage, and must be earned each pay period. The potential size of the incentive payment generally will be known beforehand. 3- What are the three tests used to determine whether a pay strategy is a source of competitive advantage? Are these tests difficult to pass? Can compensation be a source of competitive advantage? • Equity Theory: Fairness Equity theory focuses on how employees compare their work, qualifications, and pay to those of others. • Tournament Theory: Motivation and Performance Tournament theory suggests that the greater...
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...Riordan Internal and External Equity Equity internal alignment is also called the existing relationship between the payment and the different labor positions, skills, and competence within the organization (Milckovich & Newman. 2008). Internal equity describes the comparison of wages paid to the employee performing at the same level or degree within the Riordan organization. Moreover, the External Equity compares wages in the market competition, Riordan Manufacturing play where to employ and retain similar types of employees. It is based in Riordan's compensation system and pay structures. Riordan manufacturing work towards an equitable payment to the internal and external, which makes it attractive to retain and keep good employees. The implementation of structural job, payments system, analysis, and business structures, which help to identify and define the labor content describing the duties and internal assignations to endorse equal compensation (Martocchio, 2009). Additionally, external equality elements to identify market competition include, marketing surveys, researching new and current competitors marketplaces will help to maintain the company update in pay, and trends. Implementing internal and external equity Riordan will continue to be a successful organization. A wage management process and rationale The purpose behind Riordan program wages, is to get consistency in payment practices, supplemented by laws and regulations, especially with the commitment...
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...Compensation Strategy Challenges | * Human resource want to increase the performance, to retain key employees, bring new skilled talents to the company and they want to keep costs under a strict control. * Finding, motivating, developing and keeping employees is a key component of business success * The compensation components cannot be managed discretely, they have to be a part of the overall strategy - the company has to define the competitive compensation strategy.Compensation Strategy * Compensation systems in organizations must be linked to organizational objectives and strategies. But compensation also requires balancing interests and costs of the employer with the expectations of employees. * A compensation program in an organization should have four objectives: * Legal compliance with all appropriate laws and regulations * Cost effectiveness for the organization * Internal, external, and individual equity for employees * Performance enhancement for the organization * For employers, compensation costs must be at a level that both ensures organizational competitiveness and provides sufficient rewards to employees for their knowledge, skills, abilities, and performance accomplishments. Balancing these facets so that the employer can attract, retain, and reward the performance of employees requires considering several types of compensation | Nature of Compensation | * Compensation is a critical component influencing how and why individuals...
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...Importance of Achieving Pay Equity Table Of Contents What is Equity in Organizations? 4 The Equity Theory 4 Inputs 5 Outcomes 6 Importance of Equity in Pay Structure 7 Internal Equity 9 Steps to Achieving Internal Equity 9 Methods Commonly Used 9 Job analysis 9 Job Evaluation 11 Ranking Method 12 Classification Method 13 Factor Comparison Method 13 Point Method of Job Evaluation 14 Strategic Considerations 15 External Equity 16 Steps to Achieving External Equity 16 Compensation Surveys 16 Benefits of Pay Surveys to the Organization 17 Published Compensation Survey 18 Custom Developed Compensation Surveys 19 Compensation Surveys: Strategic Considerations 19 Individual Equity 21 Importance of achieving Individual Equity 21 Methods Commonly Used 22 Merit Pay System Structures 22 Sales Incentive Pay Structures 23 Pay For Knowledge Structures 24 Pay Structure Variations 24 Strategic Considerations 26 Analysis 27 References 28 What is Equity[1] in Organizations? Equity Theory attempts to explain relational satisfaction in terms of perceptions of fair/unfair distributions of resources within interpersonal relationships. Equity theory is considered as one of the justice theories, It was first developed in 1962 by John Stacey Adams, a workplace and behavioral psychologist, who asserted that employees seek to maintain equity between the inputs that they bring to...
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...The Advantages of Internal Equity in a Compensation Plan An effective employee compensation system must balance two factors -- worker motivation and labor costs. In designing your company's pay plan, you must consider both external equity and internal equity. External equity refers to comparisons with other competitive pay structures. Internal equity means ensuring fairness in pay for employees working similar jobs. There are some advantages to considering internal equity. Perception of fairness Organizational culture is an important strategic factor to business success. If you want to develop and maintain a culture of fairness, you need to strongly factor in internal equity. If employees look at others in similar jobs and see equal pay, they will likely feel like the organization and its leaders are fair. When employees respect you as fair as a leader, the chances that they listen to your direction and guidance toward their work is greater. Reduced Exposure to Discrimination While the market-based approach may attract the most talented workers, an emphasis on internal equity offers better protection against discrimination lawsuits. Title VII and the Age Discrimination Act are a couple major employment laws that protection workers from discrimination. If you pay different wages to workers in the same role, you run the risk that one is a member of a protected class and sues for wage discrimination. The Lilly Ledbetter Fair Pay Act of 2009 expanded exposure to lawsuits...
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...Riordan Manufacturing Compensation Plan Team B- Diana Barris, Nicole Bell, Jacqueline Chaney, Shawnda Davis, Hadeel Raouf, Kelly Tyler HRM/324 Annette Clark-Davis February 11, 2013 Riordan Manufacturing Compensation Plan Riordan Manufacturing is a worldwide plastics manufacturer that is headquartered in San Jose, California. Their organization has over 500 employees and prides themselves on providing their customers with high quality merchandise to satisfy their plastics needs. They hold an ISO 9000 certification which is an organization that establishes and measures quality control. In order to meet or exceed the level of quality required under ISO standards, Riordan Manufacturing will need to have knowledgeable and skilled employees within their organization. To attract premier candidates for their company, the compensation plan that is designed will need to be fair, rewarding, and competitive. This paper will outline the compensation plan for Riordan Manufacturing and include an evaluation of current trends and predict future trends, internal and external equity, a wage management process and retirement plan, financial influence on the plan’s options, and discuss the methods in which the plan will be communicated to members of the organization. Key Objectives According to Martocchio (2009), “Compensation professionals promote effective compensation systems by meeting three important goals: internal consistency, market competitiveness, and recognition of...
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