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.

External Equity:

Here the market pricing analysis is done. Organizations formulate their compensation strategies by assessing the

Factor Comparison

Internal Equity

Point System

Job Classificatio

n

Job Ranking

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.

Organizational Fairness Market Rate

Competitors Offer

Industry Standards

External Equity

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.