Internal and External Employee Equity, Essay Example

Equity refers to fairness in the corporate circles. It is used to refer to fairness in payment or remuneration of employees (Henderson, 1997). Different companies employ different modes of equity in their workplaces. They employ these methods to satisfy varying necessities. These include the legal and economic issue where equal pay is applied for similar work done, the need to cater for differences arising from external competition and varying market pressure, the value that employees attach to their pay and the need to equally pay employees doing the same work. Every company must carefully consider its implementation of the equity programs. The kind of equity mode applied by any company can go a long way in affecting the finances of the company and the motivation of its work force (Henderson, 1997).

The modes of equity that can be applied include internal equity and external equity. Internal equity is applied when the pay for employees in the company match the company’s value for the job. The employer measures the importance of the work according to the position or the role that the position plays within the company. Various factors are considered in determining the value of the job. Such factors include education level required for the job, experience that must be attained before beginning the job, the physical demand of the job, the responsibility that is attached to the job, risks that the employee is exposed to, the responsibility for others that is tagged to the job, and the working conditions and management responsibility. To give a form of job hierarchy in the company, the management has to make use of job evaluation factors. These put the jobs in order, from the highest to the lowest. These approaches include evaluation of the whole job ranking in the company, classifying the jobs, noting points defining the job and comparing the points to acquire hierarchy, and questionnaires that have scores for each job. The company must be diligent in the method they use although the final decision is entirely dependent on the management and its judgmental capability. It is paramount that the management be careful in determining the job hierarchy to ensure the smooth running of the company and the satisfaction of the employees (Henderson, 1997).

External equity is applied in cases where the wages paid to employees are commensurate to the wages being paid to employees in other companies in the labor market where the company is located. We must however appreciate that there are numerous differences in the wage payment of similar job positions in one job market. This is brought about by the fact that there is no single environment for a particular kind of job. Variations in the amount of wage paid may be attributed to physical location of the company, sector of industry that the company falls under, the size of the company, its prestige, competition of the product offered to the market, whether or not the employees are part of any labor union, the level of education,, experience required for the job and legal requirement of the job. It is important that the management in every company carefully considers the various options before setting up the external equity. This will ensure that they do not underpay the employees and they do not incur too much expense in the remuneration on the employees (Klein, 1996).

There is a third model which is known as employee equity or personal equity; it differs with the first two in that the employee is not compared to any other employee. They are paid according to their job. The employer pays wages that the employee feels are their worth. The past experiences of each individual and their knowledge of their type of job in the market. This model indulges the employee to be aware of their job description and their job market. It ensures that the employee is constantly in touch with his or her colleagues in other companies to have the best information about the changing market and therefore increase individual worth.

The internal equity and the employee equity are two perfect models that would best suit a company. These two models are similar and focus more on the individual position that is being remunerated. Internal equity involves each management in defining the importance of each job position. This will ensure that at all times, the management is aware of the value of each of their employees. The continued interaction of the employer with the employee enables the workplace to remain harmonious. Harmony would be enhanced if the employer constantly reviews the worth of the employee to the company (Reingold & Borrus, 1997). The worth of the company and subsequently that of the employer are also enhanced. It is possible for companies to create competitive positions in a market of similar jobs without employing external equity. Though external equity relies on the prevailing market wage rates to create an edge for a company, internal equity would do a better job at enhancing the edge a company has among its competitors. Each employee would feel better appreciated by their employers when they actively define the worth of their worker. Since inequity and inequitable treatment largely affects the performance of the employer, this active involvement by management boosts employee confidence and therefore performance.

Coupling this model with the employee equity model will create an edge for both the company and the employer. The ultimate goal for the employee is to ensure that the company achieves its objectives. It is therefore important that the employee is given the beat conditions to work in and also be given a leeway in discovering how the market is changing. An employee who is constantly informed on the changes occurring in the market is better placed to perform at the work place than a euphoric employee who awaits the story of success or failure of methods in the work place to change. After all, everything that happens at the work place happens to improve the company, the management and ultimately, the employee who does most of the work. The welfare of the employee must therefore be the first thing that the management takes into consideration (George, 1997).

References

George, B.P. (1997). Executive Compensation and Changes in Control: A Search for Fairness. Compensation and Benefits Review, 29 (March/April), 30-40.

Henderson, R.I. (1997). Compensation Management in a Knowledge-Based World. 7^th Ed. New York: Prentice-Hall.

Klein, A.L. (1996). Validity and Reliability for Competency-Based Systems: Reducing Litigation Risks. Compensation and Benefits Review, 28(4), 31-37.

Reingold, J. & Borrus, A. (1997). Even Executives Are Wincing at Executive Pay. Business Week, 12 (May), 40-41.