Running head: Internal and External Equity 1Internal and External Equity ComparisonHRM 324 Total CompensationInternal and External 2Pay Structure Once an organization has completed the job analysis, the company is able to developthe pay structure scale. One tool a company may use to develop its pay structure is to put in placea pay philosophy. In creating this frame of reference, the company has a representation of how itvalues employee; in addition, this serves as an aid in discussing salary negotiations. A paystructure is used to “show” the companies Pay Philosophy. Therefore, this process is how thecompany links the pay grade to the position in the company. The process of pay structure dealswith 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 equityInternal equity is a method of structuring pay, and involves creating bands or grades in areversed pyramid fashion where the top pay wide ranges at the top and the more narrow range isat the bottom. In this structure, the employee is equipped to realize that he or she is beingtreated and rewarded fairly according to the respective value of his or her place in theorganization. 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 theother employees who are working at the same post in the organization. The factors of the internalequity are the experience level, the performance and the working conditions. Internal equityensures that there is honesty and justice between the similar posts in the organizations and thatall the positions in the organizations carry out the same rules and guidelines of compensation.External equityInternal and External 3External equity exists when an employee in the organization realize and see that he isrewarded and treated fairly and honestly, when he or she is compared to other employees whoare working in similar positions in the organizations. External equity makes sure that the pay rateof the organization is competitive with the pay rates of other organization in the market. Theemployer of the organization needs to make sure that they set the pay rate that is essential toretain, motivate and attract the employees. In this situation the organization must start with acompetitive base. The market pricing is determined and the organizations design thecompensation plan by assessing the plan of their competitors in the market. The organizationsdesign the compensation plan for their employees keeping in mind the compensation plan ofother organizations in the market. Some of the organization offer higher compensation packagesto attract the best talent in the organization. Internal and External Equity in the BC Housing(The Executive Compensation Discussion & Analysis (2010) website ) Compensation isone of the most important tools that are used by the BC housing to attract and motivate theemployees who have the competent skills, the experience level and the commitment that isessential to meet and accomplish the strategic objectives of the business. The compensation planof the BC housing is a mixture of fairness and justice that is based on the internal and theexternal equity. In the BC housing the internal equity is achieved through the compensationphilosophy of the organization that is providing the total compensation that is equal to the totalcompensation provided to comparable positions by relevant comparison organizations. The totalcompensation includes the basic salary, rewards and benefits. In the BC housing the internalInternal and External 4equity is achieved by ensuring that the pay structure is constant and uniform with the relativevalue of each position in the BC housing.Advantages and Disadvantages The advantage of the internal and the external equity can be judged in a waythat they are considered important tools in the analyzing the pay structure. It is also the tool forassessing the fairness and honesty in the compensation policy. If the pay structure is low, theorganization will find it difficult to attract and the talented and competent employees. If the paystructure 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 theorganization are determined with the process of job evaluation. In this, we can establish anddetermine the worth and the value of the job in comparison to the worth and the value of otherjobs in the organization. The advantage of the external equity is that it helps to achieve externalcompetitiveness. Prior to making the comparisons on the value of the external market of a position, thehuman resource managers should establish the elements of the compensation policy such as cashcompensation and the indirect pay. These elements are important when making comparisonswith pay levels at the other organizations. Another portion in designing the strategy is to make adecision whether or not to lead the market. In this aspect, a survey needs to be conductedregarding the salary information.Internal and the external equity are the elements that will be clarified by the organizationwhen formulating their compensation plan. The compensation system is designed, andestablished in a way that meets the organizational strategy and objectives. Internal and theexternal equity must be graphed in the compensation plan in a manner that it creates a cultureInternal and External 5that the organization wants. How you manage the system and manage the issues of the internaland the external equity will define the culture of the organization.References EXECUTIVE COMPENSATION DISCUSSION & ANALYSIS. (2010). Retrieved from