Fair and Equitable Compensation
In exchange for job performance and commitment, an employer offers rewards to employees. Adequate rewards and compensations potentially attract a quality work force, maintain the satisfaction of existing employees, keep quality employees from leaving, and motivate them in the workplace. According to research conducted by the Corporate Executive Board, the most important workplace attribute is compensation, (The Increasing Call for Work-Life Balance, 2009). Not only must wages be set high enough to motivate and attract good talent, they must also be equitable—that is, the wage must accurately reflect the value of the labor performed. Fair and equitable compensation is a crucial factor in the success of an organization. It is important because it is a tool that is used to recruit, maintain, and motivate their employees to contribute to the organization’s success.
As discussed, equity or fairness is a key component in creating a successful compensation system. Equity and fairness can be defined in three ways. First, the perception exists that all employees in an organization are being treated fairly. Second, external pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar jobs in other organizations. Third, internal pay equity exists when employees in an organization perceive that they are being rewarded fairly according to the relative value of their jobs within an organization. Perceived inequity or unfairness, either external or internal, can result in low morale and loss of organizational effectiveness. For example, if employees feel they are being compensated unfairly, they may restrict their efforts or leave the organization, damaging the organization’s overall performance.
There are a number of components that need to be addressed when developing a compensation system to ensure they align with the organization’s strategy and objectives (Martocchio, 2009). The compensation
As discussed, equity or fairness is a key component in creating a successful compensation system. Equity and fairness can be defined in three ways. First, the perception exists that all employees in an organization are being treated fairly. Second, external pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar jobs in other organizations. Third, internal pay equity exists when employees in an organization perceive that they are being rewarded fairly according to the relative value of their jobs within an organization. Perceived inequity or unfairness, either external or internal, can result in low morale and loss of organizational effectiveness. For example, if employees feel they are being compensated unfairly, they may restrict their efforts or leave the organization, damaging the organization’s overall performance.
There are a number of components that need to be addressed when developing a compensation system to ensure they align with the organization’s strategy and objectives (Martocchio, 2009). The compensation
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