- Distinguish between Internal Alignment and External Competitiveness
Each and every business organization operates based on objectives that it thrives to achieve. The entity must conduct its activities while looking out for what competing organizations do in relation to remuneration and employee satisfaction, and also match its own workforce skills with fair remuneration. The firm may do this in various ways.
Internal alignment refers to “pay relationships between jobs, skills, and competencies within a single organization.” (Bryant, 2002). These jobs are compared in terms of the employee contributions to the business objectives. It also involves keen analysis of pay relationships within an organization, taking into account that such relationships indirectly or directly affect the capabilities of the workforce hence the efficiency of the entire organization.
On the other hand, external competitiveness refers to how an organization pays for jobs comparative to its competitors. The organization may set its pay levels equal to or greater than that of its competitors to match the market demands. For example, Adidas pays its employees in relation to Nike’s pay to its employees. An organization sets its pay limits with respect to lower limit rate and upper limit pay rate. External competitiveness, therefore, as opposed to internal alignment not only focuses on the single organization, but also operates in relation to the competitors’ pay schemes. It mainly analyzes what the competitors do.
- Why Do Organizations Need Both When Designing Their Compensation Schemes?
It is quite evident that every organization must put in place both the above mentioned measures to achieve its objectives successfully since employees are the key elements of success.
External Competitiveness: Most entities operate, not in isolation but with other competing firms. They must have operational external competitiveness plans for these reasons:
There is a general belief that if a firm fails to match up to its competitors’ salaries, it will experience a decline in employee morale and productivity. This would lead to general collapse of the entity.
The organizations also have it that the below-average wages will hinder a company’s ability to attract good people. “People” in this context refers to the company’s employees. Finally, some people opine that management has a moral duty to pay wages as stipulated in contracts, and that failure to meet such obligations is a direct indicator of failure in management, which no company would want to be associated with.
Internal Alignment: Organizations need to match jobs/ skills together with pay schemes. This requires internal alignment to operate properly due to the following reasons.
Clear analysis of job skills helps to evaluate the progress of the organization as a whole.
Fair matching of tasks with employees’ remuneration motivates the workers hence better performance. Improved operations maximize profitability of the firm, relative to its competitors. Profit maximization is the ultimate objective of every firm especially a financial firm.
In order to compete favorably, an organization must set in a proper pay structure, that is “the array of pay rates for different work or skills within an organization.” (Bryant, 2002).
Bryant, J. S. (2002) BAM510 Human resource management, chap 03 Retrieved from http://www.business.uni.edu/mitra/chap03.pdf