human resources. One is determining the levels of pay and benefits within the organization. Most companies are smart enough to understand the value of internal equity, since employees talk to each other, and it is difficult to discriminate internally in terms to pay, by law. Internal equity is practiced most strongly at companies that have strict policies with respect to pay scales. These are typically based on a combination of hierarchy, experience and ability. In some circles, the concept of internal pay equity specifically applies to all levels of the organization, from the CEO on down. A good example of a company that practices strong internal pay equity is Costco. Former CEO Jim Sinegal famously only made $200,000 per year and the new CEO makes less than a million, offering what is at least pay equity for a company in the United States.
Internal pay equity is important because it signals that pay is strictly based on merit throughout the organization. People within the organization are more apt to feel that their pay is commensurate with their contribution to the company. If there is no internal pay equity, that indicates that the company may have problems. Workers might see that others who contribute roughly the same to the company are paid much more, and this can negatively affect motivation. So internal pay equity is something that creates positive motivation and facilitates a stronger team culture as well (Executive Press, 2014).
External pay equity means that the compensation is more focused on setting compensation standards more in line with the market. The competition for workers in such companies is considered perhaps to be across companies, which means that pay must be set in line with other companies in the same industry. This is something you see at high levels — competition for top executives makes their pay more in line with those of other firms than in line with internal standards (Aggarwal & Samwick, 1999).
External pay equity is also reflected at entry levels, often, because entry level workers tend to move between companies frequently, and have skills sets that are largely interchangeable. This makes them price-takers, and firms in a given industry will leverage that to compete with each other on pay. This is reflected, for example, in the number of low-paying service sector jobs — all companies in these sectors pay roughly the same wage in order to balance between cost control and competitiveness as an employer. In either case, there is usually a disconnect between these wages at the bottom and wages further up the management ladder, because as managerial skill sets increase, they become more valuable and transferable internally rather than externally. McDonalds is a good example of a company that practices external wage equity both at the executive levels and entry levels, and there is tremendous disconnect between the wages at each level, a lack of internal equity.
There are several advantages for internal equity in organizations. The first is that it creates a stronger organizational culture, including stronger loyalty to the organization, because it makes all workers feel like an important part of the company whose contribution is fairly valued. Companies can use internal equity to create motivation within the organization, because it creates a direct link between contribution and results for the workers.
This, conversely, is one of the major cons of external equity. External equity programs often function at the expense of internal equity. It is not that internal equity is entirely discarded, but there can be tremendous gaps between pay at different levels. This creates a demotivating scenario where lower level workers do not feel compelled to make additional contributions to the organization because they feel that such contributions will not be rewarded anyway — or even worse that higher-ups will reap the rewards of their additional effort. The benefits of external equity, however, are that when recruiting candidates from the outside, the company is more likely to offer fair value, and therefore is more likely to deliver better personnel, in particular when recruiting from the outside. The downsides are that there is likely to be more turnover and the risk of morale issues is also higher.
If we look at Costco, its internal equity strategy directly supports its strategic direction. The company believes that lower turnover equals higher productivity, allowing it to deliver lower costs. It also believes that superior service results from a higher level of commitment to the organization, again with a positive result, in this case increased customer loyalty. So the company’s policy acts as an important component to its overall market strategy.
The same can be said for McDonalds and its external equity policy. The company emphasizes two things — low costs and high efficiency. This is achieved by hiring great managers to build highly efficient systems, something facilitated by high external equity, but also by keeping labor costs low in other areas of the organization. Again, this is something achieved by pricing low-end labor at market prices, which allows it to keep this labor cost down, even if it means some negative impact on productivity. The company actually has to take steps to reduce that negative productivity impact associated with the high turnover.
Aggarwal, R. & Samwick, A. (1999). Executive compensation, strategic competition, and relative performance evaluation: Theory and evidence. The Journal of Finance. Vol. 54 (6) 1999-2043.
Executive Press. (2014). Internal pay equity methodologies. Compensation Standards.com. Retrieved April 13, 2014 from http://www.compensationstandards.com/nonmember/files/IntPay.htm
Martocchio, J.J. (2009). Strategic compensation: A human resource management approach (5th ed.). Upper Saddle River, NJ: Pearson Education.
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
There is a very low likelihood that you won’t like the paper.
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more