Internal and External Equity Comparison Essay Sample

Timess change and as a consequence concerns have to alter. Today’s concerns face a really competitory globalized economic system. For any organisation to be successful in that market they have to take a significant base toward equity. Equity can impact an organization’s ability to pull new employees. actuate current employees. and retain the best employees. All companies regardless of size have a compensation bundle. whether formal or informal all have some compensation program for their employees. A compensation program is one of. if non the most of import facets of a successful organisational environment. Both external and internal equity play an of import function in an organization’s design and execution of its compensation construction. This paper will analyze the entire compensation programs for the Lowe’s Companies Inc. and Yum Brands Quick Service Restaurants with a focal point on internal every bit good as external equity. Internal and External equity

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It is of import first to understand what internal and external equity is. Harmonizing to WageWatch. com “external equity is a step of market fight organizing its footing on occupation maps and responsibilities. internal equity is a step of internal worth with a footing in occupation liberty and responsibility” ( Best Practices…2012 ) . External equity. traveling from the definition given. is when employers reward their employees with just compensation to those who perform similar occupations in other organisations. Internal equity is when the employees are being provided with just rewards relative to the value of their occupations within the organisation. In short. internal is within and external is outside of the organisation. One company that places a big accent on its internal equity is Lowe’s Companies Inc. An American owned company. Lowe’s offers its employee a really good rounded benefit plan which includes. but is non limited to ; “health and dental programs. flexible disbursement histories. a vision program. ill wage. holiday. paid vacations. disablement. life insurance. prescription drug program. accident program. and a parttime employee medical program. 401 ( K ) and a stock purchase plan” ( Employee Benefits…n. d. ) .

Lowe’s feels that they have an industry-leading employee benefits plan that helps them with keeping by supplying employees the best they have to offer. Building that a compensation program is what attracts quality appliers and keeps the best employees. A company concentrating on external equity for its compensation program is Yum Brands. Yum Brands is in the Quick Service Restaurant. or referred to as Fast Food concern and has over 35. 000 eating houses in over 110 states. Those eating houses include Kentucky Fried Chicken. Pizza Hut. Taco Bell. Long John Silvers. A & A ; W. Pasta Bravo. Wing Street. and East Dawning. In order for Yum Brands to remain competitory in this market their focal point is on placing the occupation demands of the organisation along with the occupation description of the full work force and so decently analyse the rewards paid to employees guaranting that they match other organisations in the same industry. When fixing a compensation program based on internal equity. it is of import to take into consideration a few of the basic factors.

For starting motors understanding what types of occupations are being performed by the employees within the organisation. Following factor being the accomplishment degree required. any instruction required for any individual place. and a thorough apprehension of how to execute each occupation within the organisation. Understanding these basic factors will help in the preparation of internal wage. Conducting an analysis and reading of the external occupation market will assist in finding where the organisation stands every bit far as their wage policies are in comparing to other organisations within the same industry. Advantages and Disadvantages of Internal and External Equity There are several advantages and disadvantages to both the internal and external equity for organisations. Internal equity will help the organisation by assisting them in being transparent. When employees feel treated respectfully it merely increases their morale. Increasing an employee’s morale additions their public presentation. which increases net incomes for the organisation.

Internal equity will assist the organisation in maintaining the best employees on board every bit good as delivery in the best appliers. There is ever a downside and with internal equity there come disadvantages. Equal wage for equal work can sometimes take employees to take their occupation for granted since they understand that they will acquire paid harmonizing to the equity policy in topographic point. regardless of their public presentation. External equity has an advantage in that employees know the wage they are having is equal to that of employees in similar occupations in different organisations. Here once more. the employee remains with the organisation because they know altering occupations will non needfully conveying with it more money. One noteworthy disadvantage of external equity is that when the organisation is non executing up-to-par and net incomes are falling they still have to pay equal to their rival. Decision

In sum uping there are commonalties between internal and external equities in that both serve to aline proper compensation of employees by their several employers. However. on the same coin both can take to hapless public presentation that merely creates a hostile working environment that in bend shackles the employee/employer relationship that in bend shackles the organisation itself.


Best Practices: Balancing Internal and External Pay Equity. ( 2012. December 20 ) . Retrieved from: WageWatch. com: hypertext transfer protocol: //ibrief. wagewatch. com/2012/12/20/best-practices-balancing-internal-and-external-pay-equity/ Employee Benefits Program/Lowe’s Employees. com. ( n. d. ) . Retrieved from: hypertext transfer protocol: //lowesemployees. com/lowes-employee-benefits/


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