COMPENSATION

MANAGEMENT
ASSIGNMENT

Made By:
Rahul Sood
M.B.A Semester III
07717003909
T.I.A.S
Internal and External equity in Reward Management
Once the job analysis has been done then the 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 equity,
external equity and individual equity are the most popular pay
structures. Job description is 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.

Job Factor
Ranking Comparis
on

Internal
Equity

Job
Classificat Point
ion System

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
high compensation packages to attract and retain the best talent
in their organizations.

Organizatio
Market
nal Fairness
Rate

External Equity

Industry Competitors
Standards Offer
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 fairness between employees in the same
business while external equity refers to relative wage fairness
compared to wages with other firms 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 will begin to balance their
performance through a variety of ways ranging from decreased
productivity to absenteeism and eventually to leaving the
business.