internal and externak equity in compensation system

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Internal And external equity in compensation
system

• Presented By
• Ankita Khare(8357)
• Neelam Sarraf(8404)

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COMPENSATION Compensation is the total amount of
the monetary and non-monetary pay provided to an
employee by an employer in return for work
performed as required.
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• Compensation is based on
• Market research about the worth of similar jobs
  in the marketplace.
• Employee contributions and accomplishments.
• The availability of employees with like skills
  in the marketplace.
• The desire of the employer to attract and retain
  a particular employee for the value they are
  perceived to add to the employment relationship.
• The profitability of the company or the funds
  available in a non-profit or public sector
  setting, and thus, the ability of an employer to
  pay market-rate compensation.

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• Components of Compensation system
• Compensation will be perceived by employees as
  fair if based on systematic components. The
  components of a compensation system include
• Job Descriptions
• Job Analysis
• Job Evaluation
• Pay Structures
• Salary and Surveys
• Policies and Regulations

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• Types of Compensation
• Direct financial compensation Consisting of pay
  received in the form of wages, salaries, bonuses
  and commissions provided at regular and
  consistent intervals.
• Indirect financial compensation Including all
  financial rewards that are not included in direct
  compensation and can be understood to form part
  of the social contract between the employer and
  employee such as benefits, leaves, retirement
  plans, education, and employee services.
• Non-financial compensation Referring to topics
  such as career development and advancement
  opportunities, opportunities for recognition, as
  well as work environment and conditions.

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• Equity Theory of Compensation
• Given by J. Stacy Adams
• Equity is commonly defined as anything of value
  earned through providing or investing something
  of value.
• The theory states that people form equity beliefs
  based on two factors
• Inputs (e.g., skill and effort)
• Outcomes. (e.g., pay)
• Employee judge the equity of their pay by
  comparing their outcome-to-input ratio (O/I) with
  another person's ratio.
• Employee feel equity when the O/I ratios of the
  individual and his or her referent other are
  perceived as being equal.

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• Types of Equity
• External Equity Comparison of similar jobs in
  different organization.
• Internal equity Relationship among jobs within a
  single organization.

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• 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.
• It exists when an organization's pay rates are
  at least equal to the average rates in the
  organizations market or sector.
• By creating external equity in relation to the
  market companies have a higher retention rate,
  which can lead to employee loyalty.
• Both PepsiCo and Coca-Cola use external equity
  analysis.

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• How to Establish External Equity
• Wage and Salary Surveys
• Identifying Key Jobs
• Selecting Organizations to Survey
• Collecting Data
• Self-Surveys
• Online Surveys
• Government Surveys
• Interpreting the Data
• Avoiding Antitrust

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• Internal Equity
• Internal equity exists when employees in an
  organization perceive that they are being
  rewarded fairly according to the relative value
  of their jobs within an organization.
• Internal equity exists when an employer pays
  wages commensurate with the relative internal
  value of each job.
• It is something a perception of their
  responsibilities, rewards and work conditions is
  seen as fair or equitable when compared with
  those of other employees in similar position in
  the same organization.
• It also help to increase employee morale and
  motivate employees towards the achievement of
  goal.

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• How to Establish Internal Equity
• A number of job-evaluation approaches have been
  developed. Such approaches include
• Job ranking
• Classification
• Point factors

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ConclusionOrganization should consider both
internal and external equity when setting wage
and salary. So that it help to support an
organization to achieve their goals harmoniously.

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• REFRENCES
• www.definitions.uslegal.com
• www.answes.mheducation.com
• www.blr.com
• www.enotes.com