External equity - pay structures - Manu Melwin Joy

External EquityPay Structures

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.

External Equity

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.