Companies are constantly on the lookout for top talent. The hiring processes and criteria have evolved, but one concept that has been touted by many as a fair and logical approach is internal equity.
Internal equity refers to ensuring that compensation for positions within a company is fair and consistent when comparing similar roles and responsibilities.
But is internal equity just a smokescreen that companies hide behind? As companies get larger, they yearn for standardization. When there’s market volatility, and there’s pressure on wages, wages go up. When that happens, some companies get sticker shock, and that precludes them from getting top talent.
In sports, two players might play the same position, but get paid drastically different salaries. This is similar for top talent.
For some companies, internal equity is stopping them from making a change and getting A-players for their team.
The Evolution of Job Roles
With the advent of new technologies and business models, job roles have drastically changed over the years. What was once a linear job description is now multifaceted. Hiring based on internal equity often fails to consider the evolving nature of roles, as it looks at them in a rigid framework. This can lead to under-compensation of employees who bring a vast range of skills to a role that previously did not require such expertise.
Market Demands Shift
Depending solely on internal equity can ignore external market pressures. If a particular skill set is in high demand in the job market, a candidate might receive offers far exceeding what internal equity would suggest. Companies might lose out on top talent simply because they are too focused on maintaining internal pay standards.
Inequities Can Get Perpetuated
If an organization initially sets salaries too low or there exists any pay discrimination, relying strictly on internal equity will only perpetuate these inequities. Instead of correcting historical mistakes or biases, companies might continue to underpay or undervalue certain roles.
Stifles Innovation and Growth
When employees realize that their pay is capped based on a predefined internal structure and not their performance or the value they bring, it can curb enthusiasm and motivation. Why strive for exceptional performance if you know there’s a strict limit to your compensation?
Inequity in Experience and Expertise
Two employees in the same job title might have vastly different experiences and skills. One might be a veteran in the field, while the other might be relatively new. Paying them the same, purely because of an internal equity structure, is neither fair nor practical.
It Overlooks Individual Contributions
Every individual brings unique experiences, skills, and perspectives to a job. Relying on internal equity can sometimes overlook these individual contributions, as it seeks to create a ‘one-size-fits-all’ pay scale. This could result in a failure to reward exceptional performers adequately.
While the intention behind internal equity is good – ensuring fairness and consistency – the real-world application often falls short.
Companies need to adopt a more holistic approach to hiring and compensation. This means considering market conditions, the evolving nature of roles, and the unique value each employee brings. After all, in the quest for fairness, it’s crucial to remember that each individual is unique, and their compensation should reflect their true value to the organization.