Internal and External Equity
Internal and External Equity
HRM/324
09/09/2013
Internal and External Equity
Equity as it applies to compensation plans used by employers refers to the exchange of service for compensation that employees make with their employers. Total compensation systems take into consideration all things of value given by an employer to an employee in exchange for his or her service in a specified role (Romanoff, Boehm & Benson). Total compensation systems include not only salary or wages, but also insurance, retirement plans, tuition assistance, child care, corporate discounts arranged with other companies, and even coffee in the break room. The design of total compensation systems must take many items and services into consideration when identifying what will attract and retain employees of the quality the organization in question hopes to attract (Romanoff, Boehm & Benson). Often these goals can conflict with one another and organizations must focus on what is more important to their employee engagement strategy. This paper will discuss two companies whose opposing views with regard to total compensation illustrate the differences between a focus on internal equity and one on external equity. Internal equity as it relates to total compensation can best be thought of as the degree of fairness that exists in the level of compensation between different levels of an organization. While fairness itself is subjective, there are several tests that an organization’s human resource managers can perform to shed light on the degree to which their organization fairly distributes pay between employees at different levels within an organization. DuPont is one organization that decided to implement a total compensation program that sought to measure and enforce fairness or equity among various levels of the organization in order to ensure that executive salaries did not increase arbitrarily or beyond what non-executive increases did
HRM/324
09/09/2013
Internal and External Equity
Equity as it applies to compensation plans used by employers refers to the exchange of service for compensation that employees make with their employers. Total compensation systems take into consideration all things of value given by an employer to an employee in exchange for his or her service in a specified role (Romanoff, Boehm & Benson). Total compensation systems include not only salary or wages, but also insurance, retirement plans, tuition assistance, child care, corporate discounts arranged with other companies, and even coffee in the break room. The design of total compensation systems must take many items and services into consideration when identifying what will attract and retain employees of the quality the organization in question hopes to attract (Romanoff, Boehm & Benson). Often these goals can conflict with one another and organizations must focus on what is more important to their employee engagement strategy. This paper will discuss two companies whose opposing views with regard to total compensation illustrate the differences between a focus on internal equity and one on external equity. Internal equity as it relates to total compensation can best be thought of as the degree of fairness that exists in the level of compensation between different levels of an organization. While fairness itself is subjective, there are several tests that an organization’s human resource managers can perform to shed light on the degree to which their organization fairly distributes pay between employees at different levels within an organization. DuPont is one organization that decided to implement a total compensation program that sought to measure and enforce fairness or equity among various levels of the organization in order to ensure that executive salaries did not increase arbitrarily or beyond what non-executive increases did