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Internal & External Equity
Once job analysis has been done organizations need to decide upon the pay structures. Pay structure refers to the process of setting up the pay for a job in an organization. The process deals with internal and external analysis to estimate the compensation package for a job profile. Internal & External equity and Individual equity are the most popular pay structures. Job description provides the in depth knowledge about the job profile and its worth.
Pay structures are the strong determinant of employee‘s value in the organization. It helps in analyzing the employee‘s role and status in the organization. It provides for fair treatment to all employees. Pay structures also include the estimation of incentives.
The level of incentives also depends on the level of job position in the organizational hierarchy.
Internal Equity
The internal equity method undertakes the job position in the organizational hierarchy. The process aims at balancing the compensation provided to a job profile in comparison to the compensation provided to its senior and junior level in the hierarchy. The fairness is ensured using job ranking, job classification, level of management, level of status and factor comparison.
External Equity
Here the market pricing analysis is done. Organizations formulate their compensation strategies by assessing the competitors’ or industry standards. Organizations set the compensation packages of their employees aligned with the prevailing compensation packages in the market. This entails for fair treatment to the employees. At times organizations offer higher compensation packages to attract and retain the best talent in their organizations.
The first thing employers should consider when developing compensation packages is fairness. It
Is absolutely vital that businesses maintain internal and external equity internal equity refers to airiness between employees in the same business while external equity refers to relative wage fairness compared to wages with other farms or businesses. No matter the compensation level, if either internal or external equity is violated, a business will most likely experience employee dissatisfaction and employees with begin to balance their performance through a variety of ways ranging from decreased productivity to absenteeism and eventually to leaving the business.
So, what constitutes a fair wage? One approach to determining a fair wage is a market survey. These are typically fast and easy ways to establish compensation guidelines for many businesses. A few phone calls to other employees in similar businesses can determine the “market” value for a specific job.
