This document discusses equity in compensation. It begins by defining compensation models and equity, including definitions of equity theory and types of equity compensation. It then discusses organizational justice, including the three types: distributive, procedural, and interactional justice. It provides an overview of where Malaysia stands globally in terms of equity compensation by examining its Gini coefficient and per capita income. Finally, it discusses the cause-and-effect relationship between equity in compensation and factors like motivation, turnover, satisfaction, and performance.

1. Equity in
Compensation
NURLIYANA BINTI MOHD SAIFUL BAHREN
2012888658
BM7703F

2. 1. Compensation Model
2. Equity
-
Other terms
Definitions
Importance
Equity Theory
Types of Equity of Compensation
3. Organizational Justice
-
Types of organizational justice
4. Where Does Malaysia Stand in the World in terms of Equity of Compensation
5. Cause-and-Effect of Equity on Compensation
Outline

3. POLICIES
TECHNIQUES
OBJECTIVES
INTERNAL
ALIGNMENT
INTERNAL
STRUCTURE
•EFFICIENY
COMPETITIVENESS
PAY STRUCTURE
• FAIRNESS
•COMPLIANCE
CONTRIBUTIONS
PAY FOR
PERFORMANCE
MANAGEMENT
EVALUATIONS
Compensation Model
(Milkovich, Newman & Gerhart (2011)
•ETHICS

4. FAIRNESS
Other Terms

5. Perceived of Inequity?

6. “Pay equity influences those
behaviors which determine
organizational effectiveness and their
behaviour towards absenteeism,
productivity, and the quality of
work”
(Lawler, 1981)
“Equality principle of reward
allocation serves to emphasizes the
common elements and similarities
based on the same qualifications”
(Deutsch, 1975)
“Organizations that ignore
equitibility concerns run the risk of
endangering negative organizational
outcomes of decisions, noncmpliance with procedures and
lower satisfaction”
(Lind & Tyler, 1988)
“Role of fairness that is concerned
with the ways in which employees
determine if they have been treated
fairly in their jobs and which will
influence work-related variables
(Moorman, 1991)
The equitable compensation and
awards that should be received
accordingly based on KSAs,
experience, contribution. All these
will give a positive behaviour to
motivate the employees to perform
better without doubting the system.
Definitions of Equity of
Compensation

7. Ability to
recruit and
retain the best
and the
brightest
Avoid
inefficiencies
and costs that
detract from
companies
Employees
will not be
taken for
granted by
the employer
Importance of Equity of
Compensation
(Burns, 2012)
To maintain
company’s
marketability

8. Equity Theory
(Adam’s Equity Theory, 1963)

10. Individuals develop
perception of fairness
by calculating their
inputs & outcomes,
then compare with
others
If comparisons done
perceived to be unfair
by the individual,
hence inequity exist
The greater the
tension due to
perceived inequity,
the harder an
individual will work
to decrease tension &
increase perceived
level of equity
As differences in
equity increases,
tension & distress felt
by the individual
increases
Basic Proposition of Equity
Theory
(Huseman, Hatfield & Miles, 1987)

11. Types of Equity
of
Compensation

12. Stock
options
Restricted
options
Employee
stock
purchase
plan
Stock
appreciation
rights

13. Internal Equity
of
Compensation

14. A company uses internal
alignment if it:
Supports organization strategy
- To structure the organization through the
nature of business and according to their
qualifications
Motivates behaviour
- The challenge is to
design structures that
will engage to
achieve
organization’s
objectives
INTERNAL EQUITY:
The pay relationships
among different jobs/
skills/ competencies
within a single
organization
Supports
work flow
- Process by
which goods/
services as
delivered to
the customers

15. Structures vary among organizations,
internal pay structure can be defined:
Number of levels
- Reporting relationships
Differentials
- To motivate, pay is determined by KSA & value added
Criteria: Content & Value
- Work & how it is done
- Contribute to objectives of organization

16. External factors
Organization
factor
Internal structure
• Economic pressure
• Government policy
• Stakeholders
• Cultures and
customs
• Strategy
• Technology
• Human capital
• HR policy
• Employee acceptance
• Cost implications
• Levels
• Differentials
• Criteria
What Shapes Internal
Equity?

17. External Equity
of
Compensation

18. Expressed through such
practices:
Pay level
that is
above than
competitors
Pay level
that is
lower than
competitor
OBJECTIVES:
- Control costs
- Increase
revenue
- Attract &
retain
employees

19. Labor market • Nature of demand
• Nature of supply
factors
• Degree of competition
Product
market factors • Level of product demand
Organization • Industry, strategy, size
• Individual manager
factors
What Shapes External
Equity?

20. How an employee judges the behaviour of the organization and
their resulting attitude and behaviour that comes from this.
Employee are ATTENTIVE & REACT to actions and decisions to the
justice of events in their everyday lives and have PERCEPTIONS
whether fair or not.
The everyday’s decisions made by the organization is the central
interest because it impacts JOB ATTITUDES & PERCEPTIONS of
fair pay, equal opportunities for promotion and personnel selection
procedures.
Organizational Justice
(Greenberg, 1987)

21. ORGANIZATIONAL
JUSTICE
DISTRIBUTIVE
JUSTICE
PROCEDURAL
JUSTICE
INTERACTIONAL
JUSTICE
INTERPERSONAL
JUSTICE
INFORMATIONAL
JUSTICE

22. Types of
Organizational
Justice

23. DISTRIBUTIVE
JUSTICE
(Adams, 1965)
Associated with decision
outcomes and
distribution of resources.
The outcomes can be
tangible & intangible

24. PROCEDURAL
JUSTICE
(Leventhal, 1980)
Processes that lead to
outcomes which
involves consistency,
accuracy, ethicality and
lack of bias

25. INTERACTIONAL
JUSTICE
(Bies & Moag, 1986)
Treatment that an employee receives as
decisions are made with 2 other
components:
- INTERPERSONAL JUSTICE:
Perceptions of respect in one’s treatment
- INFORMATIONAL JUSTICE:
Adequacy of the explanations given in
terms of timeliness, specificity and
truthfulness

26. DISTRIBUTIVE JUSTICE
Equity Principle
Allocation of rewards in proportion
to each individual’s contribution
towards group
Equality Principle
Rewards to all individuals
regardless of differential
inputs
Can directly influence interpersonal
culture and productivity of
individuals, groups and organization
(Folger & Konovsky, 1989)
Need Principle
Allocation of rewards
based on individual
needs
More an important factor to predict
organizational commitment, turnover
and behaviour to predict job satisfaction
compared to procedural justice
(Dailey & Kirk, 1992)
Which Justice is More
Significant?
(Deutsch, 1985)

27. Where Does Malaysia Stand
in Equity in Compensation?

28. Gini Coefficient:
Measures the income/
consumption of
individuals from an equal
distribution.
Index Level
0 = perfect equality
100 = perfect inequality
MALAYSIA = 46.2
Gini Coefficient of Malaysia against
Other Countries
(World Bank, 2013)

29. WHY
DOES
THIS
HAPPEN?

30. This shows that Malaysia is in the Top 10 in the world &
No. 7 in Asia with the Highest Employment Ratio that
Underpins Social Stability
(World Bank, 2013)

31. This shows that Malaysia is in the Top 15 in the world &
No. 5 in Asia with the Highest Per Capita Incomes that
Supports Social Stability
(World Bank, 2013)

32. Income equality can also be
affected by:
- Demographics
- Older populations with
wealth accrued over time
- Economic downturns
- Rigid labor market
(Bloomberg, 2013)
According to Maestri and Roventini
(2012), there is a negative
relationship between income
inequity & economic growth. This
shows Malaysia can still be
considered as average, under 50.

35. Cause-and-Effect
of Equity on
Compensation

36. MOTIVATION
TURNOVER
Equity in
Compensation
SATISFACTION
PERFORMANCE

37. Examined the
Relationship
between
Organizational
Justice and Job
Satisfaction
encompassed by 3
components,
distributive,
procedural and
interactional justice
229 employees from
Electrical Industries
Companies in Jordan
which was selected
through a stratified
random sampling
.
.
Relationship between
employees’ perception of
organizational justice and
personal traits:
Significant relationship:
Gender
No significant
relationship: Age &
educational level
OBJECTIVES:
1) Levels of organizational justice as perceived by
employees
2) Employee perceptions on job satisfaction &
organizational justice
3) Relationship of personal traits and organizational justice
1) Distributive justice:(-) Workoad, level of pay
(+) Work schedule, rewards, job responsibilities
Relationship
between
organizational
justice and job
satisfaction:
STRONG
RELATIONSHIP
2) Procedural justice:(+) Managers unbiased
3) Interactional justice: (+) Managers treat with respect , sensitive to
personal needs, discuss implications
Relationship of Equity in Compensation
with Job Satisfaction
(Al-Zu’bi, 2010)

40. • Employees feel the sense of belonginess
due to fairness
• Company will maintain its marketability
comparing with its competitors
• Equity in compensation help to retain their
employees
• Acceptance and rejection of the
compensation system plays a big role in
maintaining or changing a system
Conclusion