Internal and External Equity Comparison

In: Business and Management

Submitted By soco10
Words 1037
Pages 5
Internal and External Equity Comparison
Edgar Martinez
HRM/324
September 10, 2012
Annette Clark Davis

Internal and External Equity Comparison In today’s competitive globalized economy, an organization’s approach to equity and its perception of equity can affect an organization’s ability to captivate, retain, and motivate its employees. Therefore, external as well as internal equity play an important role in an organization’s design of its compensation structure. In this essay, it shall examine the total compensation plans for the Home Depot Corporation and IBM Global Services, focusing on internal as well as external equity. Additionally, it shall also review the various advantages as well as disadvantages of internal and external equity for both organizations. Finally, it will provide an explanation to how each plan supports each organization total compensation objectives as well as the relationship of the organization’s financial situation to its plan (University of Phoenix, 2009).
Internal and external equity An Organization that notably uses internal equity to form its pay structure is the Home Depot. The Home Depot’s internal equity exist because of its pays wages and hiring processes designed to fit each store budget, instead of hiring people with the skills to do the job at a market rate pay. The Home Depot’s decentralized stores use an elitist compensation system with different compensation plans by organization level and incentives offered only to specific employees or units. The Home Depot’s internal equity compares each pay level to other employees and business units in the company’s hierarchy. This process exists to balance the compensation structure appropriate to a job profile in comparison to the pay wages of its senior and junior level executives in the company. However, the Home Depot applies a below-market pay level for most…...

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