Compensation: Chief Executive Officer and External Equity
Internal and External Equity Comparison
Internal and External Equity Comparison
Organizations truly appreciate the value of compensation when it comes to recruiting and retaining skilled employees. Internal and External equity are vital factors in an organization and I will identify the compensation plan for an organization focused on internal and external equity. I will also compare the advantages and disadvantages of both internal and external equity of an organization. I will conclude by explaining how each plan supports the organizations total compensation objective as well as the relationship of the organization’s financial situation to its plan.
Internal and external equity
The internal equity method of structuring pay involves creating a series of pay grades or bands, with quantitative ranges at the top of the pay chart and minimum ranges at the bottom. Each pay grade represents a different level within the company. Based on how many employees are required the organization must determine how many employees of each pay grade are needed to fill those positions in the company. A company of 30 people might start with 10 to 15 grades, although smaller businesses normally do not benefit from pay grades as much as larger organizations because of the frequent instance of hybrid positions in small companies.
Coca Cola is a company concerned with the manufacture of a wide range of both non-carbonated as well as carbonated drinks and other products however, uses external equity to inform its pay structure. In this case, there is an analysis of the market pricing and a compensation plan is formulated based on a detailed industry and competitor standards assessment. It is argued that setting the employees compensation packages based on the market’s prevailing compensation rates enhances fairness. PepsiCo has over time been able to retain competent talent as a result of its basis of pay
Internal and External Equity Comparison
Organizations truly appreciate the value of compensation when it comes to recruiting and retaining skilled employees. Internal and External equity are vital factors in an organization and I will identify the compensation plan for an organization focused on internal and external equity. I will also compare the advantages and disadvantages of both internal and external equity of an organization. I will conclude by explaining how each plan supports the organizations total compensation objective as well as the relationship of the organization’s financial situation to its plan.
Internal and external equity
The internal equity method of structuring pay involves creating a series of pay grades or bands, with quantitative ranges at the top of the pay chart and minimum ranges at the bottom. Each pay grade represents a different level within the company. Based on how many employees are required the organization must determine how many employees of each pay grade are needed to fill those positions in the company. A company of 30 people might start with 10 to 15 grades, although smaller businesses normally do not benefit from pay grades as much as larger organizations because of the frequent instance of hybrid positions in small companies.
Coca Cola is a company concerned with the manufacture of a wide range of both non-carbonated as well as carbonated drinks and other products however, uses external equity to inform its pay structure. In this case, there is an analysis of the market pricing and a compensation plan is formulated based on a detailed industry and competitor standards assessment. It is argued that setting the employees compensation packages based on the market’s prevailing compensation rates enhances fairness. PepsiCo has over time been able to retain competent talent as a result of its basis of pay
References: Armstrong, M. (2007). A handbook of employee reward management and practice. Kogan Page Publishers Heneman, R.L. (2002). Strategic reward management: design, implementation, and evaluation.