EQUITY

Equity is commonly defined as anything of value earned Definitions through providing or investing something of value. Fairness is of Equity achieved when the return on equity is equivalent to the investment made. As it relates to compensation, fairness is achieved when pay equates to the value of the work performed. Inequity, on the other hand, occurs when the value of the work performed does not match the value of the compensation received

One can view equity from either an internal or an external perspective. Internally, equity can be expressed in terms of employees who do the following:

Perform similar jobs. Perform dissimilar jobs. Work within the same department. Work in different departments.

Externally, equity can be expressed in terms of employees who have these relationships to one another:

• In the same industry. • In different industries.• In the same union.• In the same profession.• In the same geographic location.• In different geographic locations.• In organizations of similar size.• In organizations of differing sizes.

Specifically, equity can be grouped into four major categories:

• external equity,• internal equity,• individual equity, • and personal equity.

EXTERNAL EQUITY : External equity exists when an employer pays a wage rate commensurate with the wages prevailing in external labor markets~ Assessing external equity requires measuring these labor markets. There is, however, no single labor market for a particular job. Supply and demand differ substantially among markets, resulting in significant variation in wages across labor markets.

The following factors contribute to these wage differences among markets:

• Geographic location.• Industry sector.

• Union status.• Organization size.• Product competition. • Company prestige..• Education and experience level of available work force.• Licensing or certification requirements called for by the job.

INTERNAL EQUITY: Internal equity exists when an employer pays wages commensurate with the relative internal value of each job. This is established according to the employer's perception of the importance of the work performed.

Before an organization can estimate the importance of each job, however, it must first determine the job-related factors that will be used for setting compensation levels - in short, compensable factors. Here are some typical compensable factors used for lower-level jobs:

• Education required. • Experience required. • Physical demands.• Responsibility for equipment/materials.• Responsibility for the safety of others. • Supervisory/managerial responsibility.• Working conditions.• Accident or health hazards.• Public contact. • Manual dexterity.

Determining the relative internal value of jobs in a large or complex organization can be a difficult process. Job-evaluation methods are often used to develop a job hierarchy that reflects the relative value of jobs on the basis of skill, effort, responsibility, and working conditions. A number of job-evaluation approaches have been developed. Such approaches include (1) whole job ranking, (2) classification, (3) point factors, (4) factor comparison, (5) slotting, and (6) scored questionnaires.

INDIVIDUAL EQUITY: Individual equity exists when an employer compensates individuals who are in similar jobs on the basis of variations in individual performance - so-called pay for performance. Excellent performers, for example, would receive more compensation than average performers. For reasons that will be explored in greater detail later, the most important compensation decisions are those that differentiate between the pay received by individuals within the company who are performing the same job.

PERSONAL EQUITY : Personal equity, unlike external, internal, or individual equity, involves no direct comparison of one individual's compensation with another's. Personal equity exists when an employer pays a wage rate that satisfies an employee's own perception of his or her worth. The standards applied by each person relate to that particular individual's previous experiences and his or her knowledge of the market value of similar jobs. These internal standards can determine the employee's pay satisfaction or dissatisfaction

TEAM-BASED REWARDS Team-based rewards are payments or other forms of non-financial rewards provided to members of a formally established team which are linked to the performance of that team. Team based rewards are shared amongst the members of teams in accordance with a scheme or ad hoc basis for exceptional achievements. Rewards for individuals may also be influenced by assessments of their contribution to team results. To develop and manage team rewards it is necessary to understand the nature of teams and how they function. Team-based rewards are not always easy to design or manage.

Team based pay is a type of performance based pay used in some organizations. In a team based pay compensation structure, a portion of an employee's wages or bonus is tied to the success of team goals, with all team members typically receiving the same or similar incentive pay. While increasingly popular, team based pay still has many critics.

TEAM COMPENSATION ADVANTAGESIn team compensation, employees may perform better in hopes of not letting down the team. This is especially so in project-based jobs which require every team member to complete a task before the rest of the team can advance to the next stage of work. Information is shared more freely when teams are reviewed and compensated as a group because the incentive to withhold information for personal gain is reduced. A 2010 study by University of California, Santa Barbara, states workers will try to perform in a way may make them "willing to make sacrifices for teammates ("take one for the team") that they would not otherwise make."

TEAM COMPENSATION DISADVANTAGESTeam compensation can lead to individual employees carrying too much burden and others being compensated for poor performance. Arguments among the team in these cases may diminish morale and harm the quality of the deliverable. Power struggles for credit when a task goes well or blame when it goes poorly can arise in a group compensation model.

KNOWLEDGE-BASED PAY

A system of payment where employees are compensated based on their individual skill level and education attainment. Under this system, employees are rewarded for reaching certain goals in education, training and skill development. Knowledge-based pay systems provide incentive for employees to improve their skill set and education.. With knowledge-based pay, more emphasis is placed on the ability of the employee to do the job.

the concept of knowledge-based pay focuses on an individual employee’s ability to improve their education to increase salary or other compensation. As the employee increases their scope of knowledge earned, the employee can generally take on more complicated and lucrative projects on behalf of the company.

KNOWLEDGE-BASED PROSKnowledge-based pay rewards employees who set goals to learn new skills and acquire new knowledge. Ambitious, self-motivated employees typically prefer this approach because it gives them a reason to focus on career development. It also provides a mechanism to reward employees who want to perform at a higher level. When companies pay for knowledge and skill development, they contribute to a systemic raising of the bar for performance across all jobs.

KNOWLEDGE-BASED CONSBecause knowledge-based pay is inherently more competitive within job ranks, it may cause conflict among colleagues and co-workers. Colleagues may feel slighted or bitter toward you if you make more money performing similar tasks. You may also feel underpaid and undervalued if you aren't paid the same as someone doing the same job at a competing company. Plus, with a knowledge based pay system, you have to spend time to take classes or training and continue to develop skills if you want to make more money.