The concept of equity is a fundamental concept in compensation and benefits management. An example is before you make an job offer to a prospective employee (job applicant), you want to check if your salary offer not only meets the candidate’s expectations; falls within the appropriate salary range quartile but also whether it is equitable with the salaries of current staff holding the same or similar jobs or jobs of the same level.
Another example is when you kept losing staff and reason that you often hear is that the job market pays better. You wonder whether your company is paying staff salaries that is equitable with the same or similar jobs in the job market.
In internal equity, we make comparisons inside the organization, among jobs. We weigh jobs in terms of their relative value of their contributions to the organization’s objectives.
There are 2 aspects that we look at:
- Relative similarities and differences in the work content of jobs.
- Relative value or contribution of the work to the organization’s objectives.
An example: How much do you pay Accounts Assistant compared with Senior Accounts Executive within the same company?
In external equity, we make comparisons outside the organization, among jobs.
In external equity; there are more options to compare, such as:
- Having a different pay mix: Company A’s compensation plan may just pay basic salary; Company B’s compensation plan may pay basic salary and allowances and Company C’s compensation plan may pay basic salary and bonuses.
- Competitive pay policy: Company D may choose a pay policy of paying above the market median (50th percentile).
- Job security: Company E may pay a lower basic salary but offer greater job security and better employee benefits.
An example: How much do you pay Senior Accounts Executive in comparison with what other employers would pay them?
In employee equity,we make comparisons among individuals doing the same job for the same organization.
The question that is asked is should all such employees receive the same pay or are there factors that differentiates what one employee is paid from another such as educational qualifications, work experience, work performance, length of service (seniority).
An example: Do you pay a recent graduate with an Accountancy degree the same basic salary as a high school graduate with 5 years’ accounting experience?
My Personal Comments
When an organization hires somebody to work for them; there are 2 primary elements (job and person).
An organization may frown on employee sharing information about their personal salaries but people do ask and tell because they wanted to know whether are they paid fairly and whether the organization is a good paymaster.
At the end of the day, people works at jobs to make a livelihood. A lot of employers often turns a blind eye to that. This is also a reason why employees share with each other on confidential pay and benefits information.