Internal And External

Equities In Compensation

Submitted to: Submitted by:

Mrs. Sumedha Vikram Khanna Indu Rana
Roll no. 20518
Shaihnaaz setia
Roll no. 20528
Definition of equity of
compensation
Equity is commonly defined as anything of
value earned through providing or investing
something of value. Fairness is 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.
 Adams equity theory :-
• Employees compare their ratios of outcomes to
inputs of relevant others.
• When ratios are equal; state of equity exists-
there is no tension as the situation is
considered fair.
• When ratios are unequal; tension exists due to
unfairness
- employee may feel angry
- employee may feel guilty
• Tension motivates people to act to bring their
situation into equity.
TYPES OF EQUITY

EXTERN INTERNA
AL L EQUITY
EQUITY

INDIVID PERSON
UAL AL
EQUITY EQUITY
EXTERNAL EQUITY
External equity exists when employees in an organisation perceive that
they are being rewarded fairly in relation to those who perform similar jobs
in other organisations.
• Wages and salary surveys
• Identifying key jobs
• Selecting organisation to survey
• Collecting data
• Pay level policy
INTERNAL EQUITY
Internal equity exists when employees in an organisation perceive that they
are being rewarded fairly according to the relative value of their jobs within
an organisation.
• The five most frequently used job evaluation methods are:
• Job ranking
• Job grading
• The points method and
• Factor comparison
Job evaluation methods
The major purpose of job evaluation is to determine relative worth of the jobs
within an organisation.

Basis for job hierarchy:

Non
Quantitative
quantitative

Factor
Job v/s Job Job ranking
comparison

Job v/s scale Job grading

Point
method
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.
PERSONAL EQUITY
Personal equity when an employer
pays a wage rate that satisfies an
employees own perception of his or
her worth. These internal standards
can determine the employees pay
satisfaction or dissatisfaction.
Determining the worth
of the executives job:
Apart from job evaluation, several other approaches are used to determine the
worth of the executives job which are discussed below;

The top down approach

Bottom up approach

The budget approach

The market based approach

The equity based approach

The track system

The maturity curve approach

The contingency based approach

Cont..
1. Top down approach: Under this approach, what should be the minimum
salary that should be paid to the chairman or top executives of the enterprise,
and then decide what salary should be paid to the subordinate executive down
the line.
2. Bottom up approach: Under this approach, one uses the highest non-
management job as its starting point and proceeds upwards through the
managerial position hierarchy.
3. The budget approach: Under this approach, scholars have allocated a
percentage of the total payroll to the executive and managers.
4. The market bases approach: Utilizing market pay data to evaluate an
organisation pay levels.
5. Equity based approach: It is non-cash pay that represents ownership in the
firm.
6. The track system: Align compensation levels with contribution to the work of
the firm among a group of engineers recruited at widely varying salaries.
7. Maturity curve approach: It is a graph that plots salaries against age or
against years of job experience.
Conclusion:
Organisation should consider both
internal and external equity when
setting wages and salary. So that it help
to support an organisation to achieve
their goals harmoniously.
THANK YOU