Prepared By
Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations.
Manu Melwin JoyAssistant Professor
Ilahia School of Management Studies
Kerala, India.Phone – 9744551114
Mail – [email protected]
External Equity
• “External equity exists when
employees in an
organization perceive that
they are being rewarded
fairly in relation to those
who perform similar jobs in
other organizations”.
External Equity
• External equity exists when
an organization's pay rates
are at least equal to the
average rates in the
organization’s market or
sector.
External Equity
• Employers want to ensure that they are able to pay what is necessary to find, keep and motivate an adequate number of qualified employees. Creating a compensation structure that starts with competitive base pay is critical.
External Equity
• Employees also compare
their roles and pay to roles
and pay in other
organizations. Unfortunately
they do not always compare
with similar types of
organizations or even in the
same sector.
External Equity
• Generally, employees consider much more than base pay in determining external equity. For some more emphasis may be placed on employee benefits, job security, physical work environment or the opportunity for advancement in deciding if external equity exists.
External Equity
• The use of salary surveys is
critical in your ability to
determine if your
compensation and benefits
are comparable to similar
roles in other organizations.
External Equity
• It is important to ensure that
the key responsibilities and
goals of the roles being
compared are similar; as is
the sector the organization is
aligned with.
Example
• A number of nonprofit organizations have tried to address quality of life concerns by only requiring full-time employees to work a 35-hour week, while many other organizations require their employees to work 37.5 or even 40 hours per week.
Example
• It is important that if the
base pay for a specific role
from group one was to be
compared to the same role
in group two, that the
difference in hours is
understood and accounted
for.
Example
• While the difference in hours may seem small, if a person who worked a 37.5 hour week made $40,000/year, they would be making $20.51/hour. If the person working the 35-hour week were also being paid $20.51/hour, their annual salary would only be $37,328 per year. This could seem inequitable unless the difference in hours was clear.
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