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Internal and External Equity Compensation

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Internal and External Equity Compensation When a company is designing their total compensation plan there are many different factors that need to be taken into consideration. Are they going to go with a compensation plan that focuses on internal equity, external equity or maybe a little bit of both? What kind of benefits are they going to offer? Is the company going to pay for the benefits in full or will the employees be responsible for paying a portion of them? Then there are also the legal aspects that need to be followed to avoid legal ramifications such as the Lilly Ledbetter Fair Pay Act of 2009.
Internal Equity Compensation “Internal equity deals with the perceived worth of a job relative to other jobs in the organization” ("Compensation Plans - An Overview - Base Pay", n.d.). “In developing a compensation package based on internal equity requires a corporation to develop and evaluate the compensable factors that will go into setting and individual employee’s pay” (Romanoff, n.d.). When a company chooses to base their compensation plan on internal equity what they do is they look at jobs that perform similar duties, and those jobs will be paid the same wage. For instance, if there are three Executive Assistants in a company then, all three Executive assistants pay will be around the same. Also with internal equity a company wants to retain the talent they currently have, so they are more than likely going to invest more in their employees by offering training and learning opportunities for their current staff to help them grow within the company.

With an internal equity compensation plan, there are advantages and disadvantages. One advantage is "employees look at others in similar jobs and see equal pay; they will likely feel like the organization and its leaders are fair. When employees respect you as fair as a leader, the chances that…...

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