Compensation System: Equity

Distributive Justice Model suggests that for compensation perceptions of fairness needs to exists within the firm because employees compare themselves to other employees. Employees need to see that what they bring to the job and what they receive is equitable.

Employees also need to see that there is external equity and that they are paid a Labor Market Model Wage rate determined by supply and demand.

In order balance equity and to improve external equity employers need to use alternate forms of compensation, e.g. bonuses, add-ons and counteroffers.

The compensation equity issue leads to job versus individual pay debate. Job based is fine when, jobs and technology are stable, and when there is much training required to learn a given job and turnover is relatively low.

And Individual-Based Pay is best when the company and environment is dynamic, when the workforce is relatively educated, there is willingness and ability to learn different jobs, when participation and teamwork are encouraged and when there are opportunities to learn new skills.

I want to hear your opinions, do you think that your current compensation systems are both internally and externally equitable?