What Is Internal Equity In Compensation and How To Address It

Internal pay equity ensures fair compensation practices within an organization by addressing discrepancies in pay among employees performing similar roles. Despite many advances, pay inequities still exist, resulting in significant pay gaps among individuals holding similar positions.

Understanding the basics of internal equity can help eliminate these discrepancies and ensure fair compensation for all employees. This article explores everything you need to know about internal pay equity, from its benefits to the steps on how to address it.

What is internal pay equity?

Internal pay equity refers to fairness in compensation among employees within the same organization. This means employees with similar jobs, skills, and experience levels are paid similarly. It applies to employee’s salary, benefits, and other forms of compensation.

Moreover, the purpose of internal pay equity is to eliminate wage gaps and unfair pay practices based on factors such as gender, race, or other characteristics unrelated to job performance.

In a study, 60% of those who saw their work environment as fair and impartial felt more effective and motivated. This highlights the importance of internal equity. Achieving this, though, requires regular reviews of pay practices, ensuring fair and transparent salary structures, and addressing any existing disparities.

What benefits come with achieving internal pay equity?

Achieving internal equity is not an easy task and can pose numerous challenges, especially for organizations of all sizes. However, when done correctly, it offers significant benefits:

• Fair and inclusive atmosphere: Internal salary equity promotes fairness and inclusivity, which boosts employee satisfaction and morale.

• Employee retention: Fair pay, based on job value, encourages employees to stay with the organization, reducing turnover.

• Talent attraction: Demonstrating fair pay practices helps attract top talent seeking equitable workplaces.

• Increased loyalty: Employees feel valued and fairly compensated increases loyalty.

• Positive workplace: Equal pay contributes to a positive and productive workplace environment.

• Fairness based on job role: It ensures that employees are compensated fairly based on the skills and responsibilities of their job, regardless of personal traits.

• Legal compliance: Internal pay equity helps organizations comply with laws against compensation discrimination, including those enforced by the Equal Employment Opportunity Commission and the Equal Pay Act.

• Conflict reduction: It reduces conflicts related to compensation, promoting harmony among employees.

• Improved reputation: Fair pay practices make organizations more appealing to job seekers and enhance their reputation within the industry.

External pay equity vs internal pay equity

The difference between external and internal pay equity is that internal pay equity is about fairness in how employees are compensated within the same organization. It ensures that people are paid fairly for their roles, experience, and how well they perform. This type of equity is important for keeping employees happy and motivated, and for avoiding conflicts and problems related to pay differences.

On the other hand, external equity means comparing how much a company pays its employees with what other companies pay in the same industry or area. This is important for attracting and keeping good employees, as it makes sure the company's pay is competitive.

In short, external equity is about being competitive in the job market, while internal equity is about being fair and transparent within the organization. Both are significant parts of a compensation strategy that aims to attract, keep, and motivate employees well.

Challenges of implementing internal equity

Implementing internal pay equity in a company can be hard due to various reasons:

• Job evaluation complexity

  Assigning a fair value to different positions requires a well-defined job evaluation system that considers factors beyond just titles. This process can be subjective and time-consuming.

• Manager bias

  Unconscious bias based on factors like gender or race can influence compensation decisions by managers. Training and clear guidelines are important to reduce this bias.

• Market competitiveness

  Balancing internal equity with competitive salaries requires aligning internal structures with market rates for certain positions.

• Cost constraints

  Closing pay gaps can be costly. Budget limitations may require prioritizing and strategically implementing changes.

• Compliance regulations

  Complying with pay equity laws is complex and requires ongoing attention. These laws usually demand that employers pay equal wages for similar work, irrespective of gender, race, or other protected traits, but details may differ by location.

How to address internal equity in compensation

As mentioned earlier, internal equity in compensation involves ensuring that employees in comparable roles with similar experience levels receive fair pay. Here's how you can address it, and see how Compensation Software's Pay Equity can help:

1. Step 1: Conduct a compensation audit

   Conduct a thorough review of your company's pay practices. This should involve examining compensation structures, pay ranges, bonus programs, and other forms of compensation to find any unfair differences. A pay equity analysis should:

   • Data collection: Gather data on employee roles, experience, performance, and compensation.

   • Job analysis: Clearly define job duties, responsibilities, and required skills for each position.

2. Step 2: Identify discrepancies and patterns

   After collecting and analyzing the data, identify any discrepancies or patterns that indicate potential pay equity issues. Check if employees in similar roles or with similar experience levels are paid differently.

   Pay Equity Suite assesses how employees are distributed across different pay levels and demographics. This analysis helps you review your pay practices and levels to see if they match your business goals and diversity, equity, and inclusion (DE&I) efforts.

3. Step 3: Investigate the reasons

   Once you've identified potential discrepancies, investigate the reasons behind them. This might mean looking at past data, talking to both employees and managers, and reviewing how pay decisions are made.

4. Step 4: Make adjustments

   If you find unfairness, make adjustments to ensure that compensation is fair and equitable. This may involve adjusting salary scales, bonus programs, or other forms of compensation to eliminate disparities.

   After completing an internal pay equity analysis or audit, use the Pay Equity Suite to develop a comprehensive plan that aligns with your organization's compensation philosophy and resource limitations.

5. Step 5: Communicate findings and approach

   Finally, communicate the findings of the audit and the approach taken to address any inequities. Be open about the changes and why you're making them. This will help to build trust and ensure that employees equally understand that their organization is committed to fair and equitable pay practices.

Communication and pay transparency can be difficult post-analysis. With Compensation Software's Pay Equity feature, you can create a clear message about pay fairness, showing your organization's commitment to equitable pay. If pay discrimination and pay disparities persist, this tool allows you to maintain internal equity in your workforce and manage your pay equity process as often as needed.

Internal pay equity examples

Internal pay equity is a critical aspect of compensation management. Here are examples of companies committed to it:

1. Salesforce

   Salesforce allocated $3 million to close the gender pay gap, ensuring equal pay for equal work. The tech company is now doubling down on its commitment to equity and has set up a system to continuously monitor and maintain pay parity.

2. Adobe

   Adobe reviewed their pay data to find gender-based pay gaps and adjusted salaries to ensure equal pay for similar work. They also launched the 'Adobe Stock's Women in Technology Scholarship' to support women in computer science and promote diversity in tech.

3. Starbucks

   In 2018, Starbucks achieved full pay equity for all employees across genders and races performing similar work. They conducted regular pay audits to find and fix any pay differences, ensuring equitable compensation for everyone.

4. Apple

   Apple conducted a global pay equity analysis to identify and eliminate pay differences based on gender or race. Since 2017, Apple has maintained gender pay equity worldwide. They conduct regular assessments of compensation data with the help of a third-party expert, closing any identified pay gaps. During annual compensation planning, they analyze promotion rates, performance ratings, and pay metrics for women compared to men.

5. Google

   Google reviewed their pay practices to find and fix any unexplained pay disparities related to gender or race. They adjusted salaries to ensure fair compensation for all employees and committed to ongoing reviews to maintain equitable pay practices.

Addressing internal pay equity is essential for maintaining a motivated and engaged workforce. Ensure you follow the steps and look to companies that have committed to internal pay equity as inspiration for your organization.

Addressing and maintaining internal equity is essential for keeping a motivated and engaged workforce. Ensure you follow the steps and look to companies that have committed to internal salary equity as inspiration for your organization. Also, utilize Compensation Software's Pay Equity feature to streamline the process of achieving your pay equity goals.