Compensation: What Is Fair and Equitable?

Fair and Equitable Compensation

By

Becky Kennedy

For

Instructor: John Cook

Compensation and Benefits Systems 365

August 28, 2015

Compensation: What is Fair and Equitable?

 The first thing that comes to mind when compensation is brought up is “dollars per hour”; however, that is not the only basis of compensation. Successful compensation packages include intrinsic as well as the extrinsic awards that organizations provide their employees for performing their jobs. People search for and accept jobs that suit their specific goals and talents, as well as fulfill their needs. They want a job that compensates them with what they perceive as fair wages as well as other forms of compensation. Employees want to feel that their contributions to an organization are valued. Employees who perceive they are receiving equitable pay are more motivated and perform better.

Equity and fairness are key components in creating a successful compensation package. Compensation is one component of the job that is continually under scrutiny by employees and employers. According to the Community Foundations of Canada, “Equity refers to the perception that all employees are being treated fairly, they are being compensated fairly in relation to other employees performing similar jobs in other organizations and are they are being rewarded fairly according to the relative value of their jobs within the organization.” So in other words, there are internal as well as external characteristics that must be monitored to ensure fair and equitable compensation. Companies view equity from more of an external perspective, whereas, individual employees view it from an internal perspective.

When it comes to fair and equitable compensation, many people do not feel they receive what they are worth. How is “worth” determined? Level of education, experience, length of time on the job, productivity, loyalty, along with many other characteristics are used to assess what an employee is worth. Organizations normally set base pay according to level of skill, knowledge and responsibility required to perform the job. (Martocchio 4) Prospective employees must take steps to ensure they are paid what they are worth. If they want to earn more than minimum wage, then it is up to them to increase their value to prospective employers. The more valuable an employee is to a company, the better return on investment that employee becomes. There are ways prospective employees can make themselves more valuable, following are just a few:

• Level of education
• Knowledge/skills
• Experience
• Motivation

All of these things can aid employees in getting better jobs with higher compensations.

From an employer’s perspective, a compensation package should align with specific organizational goals, and how to best reach those goals while minimizing costs and maximizing profits. The human resource department of an organization is left with the task of finding the best methods of attracting, hiring and retaining highly skilled employees while remaining compliant with the law and keeping costs at a minimum. In order to effectively do this, HR must develop work objectives that fit with the mission of the organization and then design compensation packages that correlate with those objectives.

Compensation strategies are a vital component to the success of an organization; however, compensation equity poses a challenge to organizations and their HR department: financial resources, desire to pay, and need to pay. (Romanoff, Boehm, & Benson 17-18) There are several factors employers must analyze in order to achieve a strong compensation strategy that works best for their organization. When developing compensation packages, human resources must pay attention to details within the organization as well as attention to outward competition within the market. There are also other criteria that must be taken into consideration when creating the best compensation package: