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Equity Article Hay Group Inc

In: Business and Management

Submitted By khjdbs
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When setting pay rates, compensation managers must take into consideration the employees' perception of fair, equitable compensation.

Pay Equity: Internal and External Considerations

Associate Hay Group, Inc.

Labor Economist Pacific Telesis

Vice-President, Hay Group, Inc.

EqUity (or fairness), a central theme in compensation theory and practice, arises in many different contexts. Here, for example, are some major areas: • The legal and economic issue of equal pay for similar work (comparable worth). • Pay differences caused by external competition or market pressures. • The fairness of individual wage rates for people who are doing the same job. • Individual employee views of their value relative to their pay. A company's approach to equity is as important as the actual pay programs it im­ plements. Companies typically emphasize external equity in the design of their com­ pensation structures. This focus on external equity enables a ,company to develop compensation structures and programs that are competitive with other companies in appropriate labor markets. Perceptions of equity can also influence a company's abil­ ity to attract, retain, and motivate its employees. Employee perceptions of equity and inequity are equally important and should be carefully considered when a company sets compensation objectives. Employees who perceive equitable pay treatment may be more motivated to perform better or to sup­ port a company's goals. Individual employees, however, perceive equity in many different ways. Therefore, it is difficult to specify one definition of equity that is ap­ plicable to all s i t u a t i o n s . ' In sum, compensation equity poses a conceptual and practical challenge: how to reconcile the company's ability to pay (financial resources), desire to pay (image), and


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