Internal Equity Comparison of Jobs Jobs worth to the Employer – Similarities and differences in work content – Relative contribution to organization objectives Accomplished through job evaluation
External Equity Value of the job to the labor market Assessed through wage surveys
Individual Equity Relative pay between individuals doing the same job Influences motivation
Organizational Justice Perceived fairness of the pay system –Outcomes –Process Issues –Interactions Influences Commitment, Organization Citizenship
Strategic Perspectives The strategy balances 4 types of equity Best Practice Contingency: – organizations will have pay systems that fit with their business strategy – organizations that have “fit” will outperform those without “fit” Strategic Decisions include: – pay level, pay structure, individual rewards, team rewards, pay administration
Best Practice v. Strategy Debate Best practice - there are a set of compensation practices that are good for all firms. Strategy - the set of compensation practices that are good for firms will vary based upon the firm’s goals.
Best Practice Examples* High wages Guarantee of Employment Security Use incentives; share gains Employee Ownership Participation & Empowerment Teams Smaller pay differences *Source: Pfeffer, Competitive Advantage Through People ,
Summary There are four key elements to equity The strategic contingency view is that some firms may weight those elements differently depending on firm objectives The best practice view is that there are good practices that all firms should engage in no matter what their strategy.
Summary (continued) Equity forms the basis for compensation management Strategy guides the organization in the balancing of equity components The test is whether the compensation system reinforces sustained competitive advantage