Management of the Internal and External Pay Equity - Coursework Example

Firstly, the company's transparency in pay practices along with employees' trust boosts employee morale and enhances their loyalty. Secondly, internal pay equity creates a good sensible business; thus improving the firm’s retention of its top performers and maximizing its chances of hiring top talent in the industry. Therefore, failure to manage the internal pay equity can result in losing employees to other companies and creates disloyalty among the employees (Kramar & Syed, 2012).

External pay equity management is also important for a company’s success. Employers are expected to manage carefully and determine the appropriate markets. Therefore, the management of the appropriate markets helps in having accurate external wage comparisons. Thus, this reduces unnecessary payments in some areas (Kramar & Syed, 2012). For instance, a narrow determination of a market can lead to wages that are higher than expected.

Therefore, employee inequity and equity perception are equally significant, and companies should consider them as it sets their compensation objectives (Perkins & Perkins, 2011). Employees perceiving equitable pay treatment can be more motivated in supporting the company's goals of performing better. In conclusion, regarding compensation, fairness is reached when pay is equal to work performed value. Read More