Running head Internal and External Equity 1 Internal and External Equity Comparison HRM 324 Total Compensation Internal and External 2 Pay Structure Once an organization has completed the job analysis the company is able to develop the pay structure scale One tool a company may use to develop its pay structure is to put in place a pay philosophy In creating this frame of reference the company has a representation of how it values employee in addition this serves as an aid in discussing salary negotiations A pay structure is used to show the companies Pay Philosophy Therefore this process is how the company links the pay grade to the position in the company The process of pay structure deals with the internal and the external analysis to determine the compensation plan of a job profile The internal and the external equity are considered the most important pay structures Internal equity Internal equity is a method of structuring pay and involves creating bands or grades in a reversed pyramid fashion where the top pay wide ranges at the top and the more narrow range is at the bottom In this structure the employee is equipped to realize that he or she is being treated and rewarded fairly according to the respective value of his or her place in the organization It is a situation when an employee understands that his duties and responsibilities bonuses and the working conditions are fair and even when they are compared with those of the other employees who are working at the same post in the organization The factors of the internal equity are the experience level the performance and the working conditions Internal equity ensures that there is honesty and justice between the similar posts in the organizations and that all the positions in the organizations carry out the same rules and guidelines of compensation External equity Internal and External 3 External equity exists when an employee in the organization realize and see that he is rewarded and treated fairly and honestly when he or she is compared to other employees who are working in similar positions in the organizations External equity makes sure that the pay rate of the organization is competitive with the pay rates of other organization in the market The employer of the organization needs to make sure that they set the pay rate that is essential to retain motivate and attract the employees In this situation the organization must start with a competitive base The market pricing is determined and the organizations design the compensation plan by assessing the plan of their competitors in the market The organizations design the compensation plan for their employees keeping in mind the compensation plan of other organizations in the market Some of the organization offer higher compensation packages to attract the best talent in the organization Internal and External Equity in the BC Housing The Executive Compensation Discussion Analysis 2010 website Compensation is one of the most important tools that are used by the BC housing to attract and motivate the employees who have the competent skills the experience level and the commitment that is essential to meet and accomplish the strategic objectives of the business The compensation plan of the BC housing is a mixture of fairness and justice that is based on the internal and the external equity In the BC housing the internal equity is achieved through the compensation philosophy of the organization that is providing the total compensation that is equal to the total compensation provided to comparable positions by relevant comparison organizations The total compensation includes the basic salary rewards and benefits In the BC housing the internal Internal and External 4 equity is achieved by ensuring that the pay structure is constant and uniform with the relative value of each position in the BC housing Advantages and Disadvantages The advantage of the internal and the external equity can be judged in a way that they are considered important tools in the analyzing the pay structure It is also the tool for assessing the fairness and honesty in the compensation policy If the pay structure is low the organization will find it difficult to attract and the talented and competent employees If the pay structure is high the organization might face the financial difficulties to retain the employees The advantage of the internal equity is that the worth and the value of each post in the organization are determined with the process of job evaluation In this we can establish and determine the worth and the value of the job in comparison to the worth and the value of other jobs in the organization The advantage of the external equity is that it helps to achieve external competitiveness Prior to making the comparisons on the value of the external market of a position the human resource managers should establish the elements of the compensation policy such as cash compensation and the indirect pay These elements are important when making comparisons with pay levels at the other organizations Another portion in designing the strategy is to make a decision whether or not to lead the market In this aspect a survey needs to be conducted regarding the salary information Internal and the external equity are the elements that will be clarified by the organization when formulating their compensation plan The compensation system is designed and established in a way that meets the organizational strategy and objectives Internal and the external equity must be graphed in the compensation plan in a manner that it creates a culture Internal and External 5 that the organization wants How you manage the system and manage the issues of the internal and the external equity will define the culture of the organization References EXECUTIVE COMPENSATION DISCUSSION ANALYSIS 2010 Retrieved from http www pssg gov bc ca psec disclosuredocs execcompdisclosure09 10 BC Housing Management Commission pdf