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Internal and External Equity Comparison

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Internal and External Equity Comparison Total compensation means to reward employees for their labor. Compensation packages in today’s market can range from low to high depending on the company’s goal. Compensation packages have the ability to attract a certain type of candidate to apply for a specific position within an organization by the way they are designed. With the economy constantly changing and somewhat unstable, it is important for a company to offer a compensation package geared towards not only the employee but as well as the economic changes. Two types of equities plan an organization can use are, internal and external equity.
Total Compensation 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 (hrcouncil.ca). Internal equity is a good way to ensure that employees receive fair wages and cannot file lawsuits against the employer. Although two employees functioning at the same level in the organization, it is possible for them to draw different pay. J.P. Morgan, an American Capitalist, is said to have a rule regarding investing into a company. Mr. Morgan stated that he would not invest in a company that pays the CEO over 50% more than the next level executives (Compensations Standards 2015). The corrective approach is addressing the "internal pay equity check" as did the companies like DuPont and Intel when they felt as their CEO paychecks were getting out of control. Internal pay equity is a simple benchmarking tool that an organization use by having their Human Resources team analyzes historical data concerning pay for its employees against the CEO. Fred Cook, Founder of Frederick W. Cook & Co., stated that using the internal pay equity is fair, economical, mitigates market biases. It leads to...

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