Hrm 324 - Internal and External Equity Comparison

Internal and External Equity Comparison

Stacy A. Figg

HRM/324

April 11, 2016

Dr. Shane Howell

Internal and External Equity Comparison

        For organizations to strive in competitive markets and retain top talent, they must have a total compensation plan that is rich and desirable to both potential employees and their existing employees.   Total compensation packages include not only base salaries, but can also include health benefits, tuition assistance, child care, vacation, retirement plan options, and bonuses. When designing a compensation plan there are many factors to be considered and a vision of how the final plan will mold with the current culture and strategy of the organization.  This paper will focus on identifying a total compensation plan, identify the internal and external advantages and disadvantages, and explain how the plan will support the total compensation objectives and its financial situation to its plan.

Total Compensation Focused on Internal and External Equity

        When developing a total compensation plan there are several resources and measurements that can be used.  One of the resources are the salaries of the organizations specific market.  “External equity the situation that exists when an organization's pay rates are at least equal to market rates” ("External Equity Law And Legal Definition", n.d.). This allows an organization to compare their current salaries to its competitor’s salaries.  The organization can then determine if they want to increase or decrease salaries compared to the market and depending on the financial situation and budgets.  Internal equity safeguards fair pay for employees that are in similar roles.  Both of these factors must be included in the design of a total compensation plan.

        One organization that places great importance on internal equity is Walmart.  They offer a rich health and wellness benefit that includes the option of an HRA (Health Reimbursement Account) or an HSA (Health Saving Account), HMO plans, vision, dental, short-term disability, and company-paid life insurance.  They also offer their employees a six percent 401k match, discount card, and complimentary membership to Sam’s Club.  Walmart believes that by offering these types of benefits to their employees to keep them healthy and happy.  “Discover everything you need to keep your career – and your life – running smoothly. We offer competitive pay and great benefits to eligible associates” ("Working Here", n.d.).  By continuing to offer these types of benefits to employees, Walmart can retain valuable employees by showing them that health and financial wellness are areas of concern.

        American Institutes for Research (AIR) highlights their external equity efforts in their total compensation plan.  They “target cash compensation competitively against the appropriate market”   ("Rewarding Our People—air’s Commitment To You", n.d.).  This is done through salary increases, bonus programs, and promotions and promotion increases.  AIR achieves competitor knowledge by participating in salary surveys that include their competitors such as RAND Corporation.  These surveys give them the opportunity to take the information and audit it against their current job descriptions and salary ranges for each position.  They can then determine if their total compensation package needs to be modified per the market.