Rewards equity is based on three fundamental principles: individual equity, internal equity and finally, external equity. As we know, not everything is black and white when it comes to rewards; hence the importance of a thorough understanding of these fundamental pillars, as well as the tools available to minimize the ambiguity of an overly large grey area. We believe that this publication will allow you to ensure the optimal salary positioning of your resources in terms of rewards.
INDIVIDUAL EQUITY: A rewards system takes into account individual equity when the compensation of incumbents holding the same job in the company varies by based on years of service, performance, skills and experience.
INTERNAL EQUITY: Internal equity is ensuring that jobs with similar requirements wihthin an organization are paid equally. As such, job evaluation addresses this principle through the implementation of a tool that will evaluate each job based on the same factors and sub-factors, rank the jobs in your organization and assign them with a specific salary range.
EXTERNAL EQUITY: External equity is about ensuring that the organization offers comparable/ competitive compensation to that offered by other organizations for similar jobs. For employees, competitive compensation can Influence their attitudes, such as their intention to join or leave an employer, or to join a union. For employers, competitive compensation influences their ability to attract and retain staff, as well as the cost of their labor force.
The Main Principles of External Equity
To be behind the market - Salaries below market levels with a gap of more than 5%:
- Lowers personnel costs
- May make it more difficult to recruit and retain staff
- May encourage employees to unionize or reduce their commitment
To match the market - Salaries are approximately 5% below market:
- Lower cost risk
- Calls for more aggressive HRM policies or other working conditions to attract and retain the best employees
To lead the market - Salaries above market with a gap of more than 5%:
- Increases operating costs and reduces profitability
- Attracts and retains more competent and high-performing employees
- Offsets the disadvantages associated with certain positions, organizations or industries
Lussier’s team of rewards experts is at your disposal to establish with you the implementation plan to put in place the tools that will allow you to maximize the impact of each of the equity concepts in terms of rewards management in your organization.
We therefore invite you to contact us for any questions regarding the types of pay equity or for any other consulting service in the area of total rewards.