Equity vs. Equality and Merit in Compensation - Essay Example

Equity vs. Equality and Merit in Compensation The principles of equity and equality with merit are amongst the fundamental principles that are used in the organization of a labor market and the determination of the structures of pay as well as reward. Whereas it is important to treat everyone equally, with justice and to expect the same from everyone, which is the essence of equality, it is also important to know that some groups or individuals may have needs that are capable of being better satisfied by a slightly different treatment, resulting in a better output for which compensation is provided. Equity in compensation refers to the notion of ‘fairness’ in employment with there being a consideration for the recognition of employee contribution to an organization as a result of the work that they perform. An offering of better pay for better training or experience and a consideration for the needs of an employee by providing a living wage or by taking care of their health care needs may be considered to be equitable. Equality requires that all employees, regardless of their gender, age, race etc are compensated equally for the equal work that they perform and this means that individuals in large system lose their uniqueness. Merit is about providing an above average increase in compensation for high – the quality of performance related to the work that an individual performs in an organization. A worker’s salary is of considerable importance in their level of satisfaction with their position in an organization and hence their quality of work output. Considerations related to equity are considered more frequently in cultures which emphasize the individual as in the United States, while equality is considered to be important in cultures that consider the group to be more important. This brief essay attempts to compare equity with equality and merit in regard to compensation. Contents Introduction 4 A Comparison of Equity and Equality with Merit in Compensation 6 Conclusion 10 References / Bibliography 12 Introduction Considerations related to the principles of equity and equality has been very much a part of the debate about the structure of reward or compensation systems since the early 1970s. The efforts of the women’s movement and later the debates about the nature of multicultural societies had focused the attention of the United States lawmakers on these issues, resulting in the prohibition of sex – discrimination in employment, recognition of maternity leave as a temporary disability and the lifting of the ban on women participating in military combat (Creamer, 2000, Pp. 3 – 6). Apart from issues related to the inequality of sexes in a society and gender mainstreaming, the principles of equity and inequality also have an impact on matters related to egalitarianism, racial equality, and poverty alleviation as well as the satisfaction of the wants or desires of an individual through the selling of their skills and expertise. Diversity should not mean that the hard work and effort of individuals should be ignored or sacrificed but on the other hand, an organization also benefits by having employees from all groups represented in the community and by compensating them adequately for the work that they perform so that they can build a future for themselves and their organization. Discrimination results from attempts to reduce the wages paid to certain groups such as women or immigrants when they perform the same work as others. Incentives, compensation and an understanding of reward systems are important in an organization because it is these rewards which determine to a large extent how individuals behave in an organization. Although money is important to individuals, it has also been noted that non – monetary rewards are also important in organizations which have to try to bring about horizontal equity in which all employees have to be treated equally and fairly (Rubery, 2003, Pp. 2 – 13). The principle of equality demands that the same standard or treatment be applied to everyone and that an organization should have the same level of expectation from all its members (Creamer, 2000, Pp. 3 – 6). In its basic form, this principle is enshrined in most reward systems in public as well as private organizations. Hence, the criteria which measures performance or the quality of performance has to be universally applicable, without any regard to distinguishing features such as gender, race, marital status, religion or political opinion. Therefore, rewards and the decision to provide an individual with an opportunity should only be based on the work and the effort or skills that are required for a job. On the other hand, the principle of equity presents the notion that applying the same standards or treatment to everyone can bring about inequities and dissatisfaction because individuals have needs which they satisfy by working and if these needs are not met then the quality of work deteriorates as a result of personal dissatisfaction. Equitable treatment is, however, usually provided only when such treatment does not unduly disadvantage other workers and when it is for the overall advantage of an organization which will have a need for certain employees (Rubery, 2003, Pp. 10 – 20). In developed societies such as the United States of America, which provide a reasonable level of social security to its members, equity in compensation has come to be accepted as “Paying employees according to the skill, effort, responsibilities, and working conditions required by their position regardless of their gender, race, age or religion” (Seaman, 1999, Pp. 1 – 2). The concept of deservedness is important when discussing both equity and equality because individuals should be perceived to be receiving a compensation that they deserve for their efforts, quality of work expected of them as well as the responsibilities that they shoulder (Smith, 2002, Pp. 410 – 415). The manner in which the principles of equity, equality, and merit are applied in compensating employees as a result of incorporating them into the wages policies of organizations has an impact on organizations because there is an impact on employee morale, willingness to contribute and their perceptions of organizational fairness. Economic as well as social forces are unleashed through the wages policy that shape employees who work together, influencing their values, outlook, future composition as well as capabilities. It is, therefore, important to consider how well equity compares with equality and merit in compensation. This essay attempts to compare equity and equality with merit in compensation. A Comparison of Equity and Equality with Merit in Compensation Whereas, the principle of equity is important in an organization, because individuals feel more comfortable and attached to groups of people if they feel that they will be looked after, cared for and treated according to their expectations, with their needs being met, there is also a need to provide equal opportunity and equal treatment. Pay equity refers to the notion of equal pay for work of equal value which has to be performed by individuals within the organization (Amey, 2002, Pp. 26 – 29). A job that is required to be performed when working for an organization has to be studied carefully with regard to what is involved in performing the job. Some of the factors that need to be considered when trying to establish pay equity include the skills that are required in order to perform the job, the effort that is involved, the level of responsibility that is involved and the working conditions in which a worker will be performing the job. Individuals within an organization will themselves understand pay equity as they gauge the fairness of their work outcomes in relation to those of others. Adam’s Equity Theory proposes that when individuals are faced with perceptions of them being unfavorably rewarded in comparison to others, they will try to act to remove the inequity and to restore equity. Underpayment for equal work being performed will result in a loss of work output, employee productivity or attempts to find other more equitable employment, while overpayment for work being performed can result in guilty feelings. Hence, it is important that an employee’s job be carefully evaluated in order to correctly compensate them for their work (Baker, 1998, Pp. 593 – 616). Much of the emphasis that has been placed on pay equity arose out of the struggle of women to win equal pay for their work as they had been receiving discriminatory treatment at work as a result of the patriarchal notions that their place in a society was at home. Job evaluation systems attempt to assess the complexity of a job and not the performance of the employee when performing the job in determining the compensation that needs to be paid. Hence, it is the jobs that are being ranked and classified and not the performance of the worker. It is possible to compare the job of a secretary with that of a parking lot attendant or an executive using these job evaluation techniques. However, there are problems associated with job evaluation systems as these systems can themselves be inequitable. The emphasis that may be placed on a skill can also be discriminatory, resulting in inequities in job evaluation and hence inequities in compensation (Hallock, 2000, Pp. 8 – 12). Equity pay systems, therefore, attempts to place an emphasis on the individual rather then the group as a whole, attempting to fit the individual better into the compensation system by trying to take into account their abilities as well as the demands of a job better and equity is emphasized in individualistic cultures such as that of the United States of America. Hence, pay equity attempts to ensure that if an employee is earning a better compensation then the others, then there are valid reasons why they are doing so including considerations related to the efforts that they may have put in to acquire the skills which enable them to perform their job (Core, 2003. Pp 2 – 10). Workers unions do play an important role in ensuring that pay equity is fairly implemented when bargaining for conditions of work in the United States of America where the notions of equity have become firmly entrenched in societal values and the laws of the country (Milkovich, 1999, Pp. 12 – 16). Coupled with fairness in employment, there is also a need to consider individual aspirations and notions of self worth. If an individual is required to perform a job for an organization, the skills for which are in a short supply, then the organization has to meet their requirements under which they are willing to perform the job if there is a requirement for that job to be performed, because the requisite skills are not readily available. Hence, references to equity in pay are more widely applicable to compensation which is set for hierarchies of employees in an organization (Arrow, 2004, Pp. 2-12). Pay equity refers to those programs which have been initiated to achieve equity in pay in a systematic manner. Pay equity committees may be required for employers with a relatively large workforce of more then a hundred employees. For millions of Americans who are trapped in poverty doing hourly paid jobs in service industries such as working as waiters in restaurants or dishwashers, the notions of pay equity are insufficient to offer much hope, even though the minimum wage legislation provides some comfort. Equality in wages policy provides everyone with the chance to perform the same work in order to earn the same compensation and to be treated equally in regard to employment. The salary or wages, pay as well as the terms and conditions of employment are the same for all workers regardless of their gender, age, race or other distinguishing features. Employees are also treated the same if they are subjected to any disciplinary action. However, even though the system attempts to promote equity, there are no detailed studies for evaluating job classes in order to ensure equity (Blackett, 2004, Pp. 2.14). If a job is capable of being done by a man, woman, an elderly person or a youngster, then they will all get the same pay for doing the same job. Equality means that there is an emphasis on the group of workers and attempts are not made to consider the individual. Even though the wages policy based on equality alone will be broadly fair, outstanding individuals with training, experience or other desirable attributes will be treated at par with all those who are capable of performing the same job, even though they may be less experienced, skilled or qualified. Hence, outstanding individuals will have to sacrifice for the broader good of the group (Rubery, 2003, Pp. 1 – 19). The emphases is on get the job done and get paid, without any other desirable attributes which an employee may bring with them that may make them more proficient at performing the job as compared to others. Perhaps mere equality in pay is more appropriate for jobs that cannot be considered to be highly skilled and the notion attempts to address the more overt form of gender or racial discrimination which can be found at work (Sara, 2000, Pp 1 – 15). In some ways, equality may be compared to communism as a system in which there is no real motivation to perform better except perhaps out of a sense of loyalty to a group with a desire to better the group as a whole. Talented persons are likely to be wasted in a wages policy that is based solely on equality. Equity in pay is, therefore, more sophisticated than mere equality in pay. Although essentially the principles of equality are applicable in organizations throughout the United States of America, pay equity which considers individuals matched to the demands of a job is far more expected. Merit pay refers to pay for performance and this is usually not a part of structured compensation systems in which workers may receive increases in salary with the number of years that they have served. Merit is applied for the quality of work and appeals to the American values of individualism, achievement and reward. Meritorious work can bring about accelerated promotions or bonuses after the value of this work has been judged. Merit pay may also be granted to deserving individuals when it is difficult to grant across the board increases in compensation in situations when it is desirable to recognize excellent work in difficult budgetary conditions. A bonus earned as a result of a salesperson meeting or exceeding their sales target is merit pay, but this merit pay is not a part of the basic pay and is provided on top of the basic pay to motivate achievers as well as other employees. Merit can mean different things for different workers. For an academic, merit may be associated with some outstanding research publication that they may have authored, for a salesperson merit may be associated with sales targets and for a project manager, merit may be related to the successful completion of a complex project on time and within schedule. It has, however, been argued that at the organizational level, always treating all individuals the same is neither fair nor equitable and that recruiting practices as well as promotion policies should recognize career patterns as well as work habits of individuals (Creamer, 2000. Pp. 5 – 7). It appears that individuals within the “system” also have individual needs, interests, aptitudes, gifts of the divine and aspirations which should be recognized, encouraged or developed by their supervisors, managers, teachers, family, employers, the community and the society. Hence an overt emphasis on equality and merit in compensation can result in organizations which are not the so-called “learning organizations”. Competition results in knowledge being jealously guarded and there is no teamwork, friendship, sharing or a spirit to collectively solve complex problems. Most economic models of individual behavior in organizations assume that people are exclusively motivated by their material self-interest. However, it has been found that individuals do care for the well – being of others and this can have important implications (Fehr, 2000, Pp. 1 – 20). A majority of individuals in a community or the society at large are not interested in extremes of equity or equality, but they are more interested in notions of what they consider to be “fairness”. Fairness considerations shape the behavior of groups of people in important economic domains. Most individuals are willing to sacrifice a little to enable a group as a whole to achieve more and to assist those who are disadvantaged. These individuals are more interested in their relative position within the group that they belong to and in organizations. An employee’s willingness to contribute as well as their morale is affected by the general perceptions that they have about the fairness of an organization’s policies. Firms may have a need to reduce wages in difficult economic times by indirect means and the tax evasion which is carried out in a community has been demonstrated to be in direct correlation with the perceived fairness of the tax system that has been put in place (Fehr, 2000, Pp. 3 – 5). The notion of “fairness” and the published evidence together with empirical evidence available in literature will tend to indicate that the most appropriate compensation policies in an organization, community or society are not determined by their adherence to the principles of equity or equality, but rather by what can be considered to be fair and reasonable, considering factors such as the resources that are available, the needs of organizational members which are determined by cost of living, the level of relative affluence and deprivation, the available profits that are being shared between the organization and its members along with what can be sacrificed without feeling the pinch or sacrificing the long term needs of individuals. Luckily, most organizational members or members of the public do not have to make decisions about what levels of equality, equity and merit will be fair and appropriate. However, senior managers of organizations and politicians do have a need to consider the resources that are available along with the wants that have to be satisfied as well as the business environment in order to come up with a compensation policy or allocation of resources that will stand up to scrutiny by all as being fair and reasonable (Fehr, 2000, Pp. 3 – 15). Conclusion Whereas the principles of equity and equality as well as the notion of merit in the allocation of resources or rewards, such as compensation or wages represent some of the fundamental considerations associated with such decisions, employees generally feel happy when they know that they have been fairly treated in regard to their compensation under the circumstances in which they may find themselves. Equity with an attempt to consider the requirements of a job when deciding on pay usually results in the fairest determination of compensation as an individual is fitted to a job. 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