Human Resource Management

Human Resource Management

Answer 1

Internal Equity

Internal equity, external equity and employee equity are the concepts related to compensation management. Internal Equity is basically the perception of employee working for a specific organization, of the working conditions, responsibilities and rewards pertaining to the organization he/she is working with. The perception is developed in comparison with the same for the employees who are working for the same organizations. The employee using this compares his or her equity; in terms of reward, working conditions and the likes, with those of the others working for the same organization in similar capacities. It imparts the fairness of the pay structure. Internal equity principles are when met results in customer satisfaction. It is a technique to set the compensation or the wage rate which reflects upon the performance of employee for doing so. The elements which are compared in upholding the policy of internal equity while determining the compensation revolves around the nature of the job, skills, effort responsibility and working conditions. The investigation or study for internal equity is undertaken to determine whether there is pay equity among the employees, which fosters good employee morale and productivity in the organization.

External Equity

On the other hand, the pay structure consisting of external equity is the pay that is dictated by the market rate. In contrast, internal equity is the pay structure that is dictated by what employees working in the similar organization under similar capacity as compared to the reference are paid. External equity is mostly followed by the forms because for the firms to hire competent employees, they need to pay according to the market. Negative external equity arises when the employees are paid below the market rate and this adds no value for the employee who seeks to work the companies which pay competitively. Thus organizations now form compensation strategies on the basis of industry standards. Sometimes, organizations also offer higher compensational packages so as to hire and retain top talent, thereby offering positive external equity.

Employee Equity

Employee equity is different from internal and external equity in that the some employees are offered or issued disparate types of stocks or stock options when they are hired; depending upon the position they are selected for. For instance, a type of employee equity could be the 'Restricted stock' that only those employees are offered who are present at the startup of the organization, or those who ...