What is internal equity, external equity, individual equity and cost of living equity in the context of wage and salary fixation?
The above equities are important part of the alignment of evaluation and compensation systems with one another and with their company’s business goals. Today, rewards for an employee covering both monetary and non – monetary recognition must fulfill four objectives: they must meet his basic needs and conform to the three parameters of external equity-fairness vis-à-vis compensation standards in the industry, internal equity - a fair deal for him within the organization in comparison to his colleagues, and individual equity - reward his unique contribution to the company.
Importantly, while the first three factors are determined by broad forces such as the cost of living, the rate of inflation, pay scales in the industry and pay scales within the organization, the company can link the fourth component of employee rewards directly to its strategic goals by pegging it to employees contribution towards achieving them.
The above equities are important part of the alignment of evaluation and compensation systems with one another and with their company’s business goals. Today, rewards for an employee covering both monetary and non – monetary recognition must fulfill four objectives: they must meet his basic needs and conform to the three parameters of external equity-fairness vis-à-vis compensation standards in the industry, internal equity - a fair deal for him within the organization in comparison to his colleagues, and individual equity - reward his unique contribution to the company.
Importantly, while the first three factors are determined by broad forces such as the cost of living, the rate of inflation, pay scales in the industry and pay scales within the organization, the company can link the fourth component of employee rewards directly to its strategic goals by pegging it to employees contribution towards achieving them.
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