Internal and External Equity Comparison

Internal and External Equity Comparison

Internal equity is essentially a system that is laid out by an organization stating what positions pay what, based off their responsibilities in that position. The pay that a position has most commonly has a pay range. New employees into that role will most commonly be compensated for the starting or base pay of that range, earning increases in that role taking their pair closer to the high end of that pay range throughout their years of experience in that role ("Hr Council " n.d.). Another way internal equity determines the pay of certain positions is based off other positions in the company that are similar. Roles are sometimes determined to be management level, administrative, or entry level. For example, there could be multiple management positions within that organization that are all similar and essentially handle the same duties; therefore making them the same pay range ("Hr Council " n.d.).

ADT Security Services is an example of an organization that uses internal equity. Hourly positions at ADT are all assigned non-exempt pay ranges. Entry level positions are N2, middle level positions are N3, and higher experience level positions at N4. The N2 pay range for example, is $10.00-$12.00 an hour, depending on experience and skills brought by the applicant, including previous positions held at other organizations and education level. Our salary exempt positions are managed the same way, using an E2-E4 scale which is very comparable to the system used for hourly non-exempt employees.

When an employee goes from an hourly to a salary position, this becomes more difficult to get to the base minimum pay of that pay range, depending on when they were hired and how long they were in their positions. ADT then uses another piece of internal equity; equity increases. Equity increases are used to compare the rate of pay for all employees in that role and ensuring that new team members are being paid fairly as their peers to complete the same duties and tasks. (David Cornelius, 2014).

External equity is a system in which employees compare the rate of pay they are receiving to employees in comparable positions at other organizations ("Hr Council " n.d.). For example, an IT analyst at one organization may be paid based off what all organizations in the area are paying their employees in that role and/or employees in similar roles. This