Internal equity and external equity make up fair pay. Both are important for attracting and retaining the best employees.

Prioritizing fair pay helps close the gender gap. Following processes to sustain fair pay throughout each employee’s tenure with your company also promotes this initiative.

Discover why internal and external equity in compensation matter and how you can promote them.

Approaches to Internal and External Equity in Compensation

Internal equity is equal pay for equal work within a company.

• Internal equity uses market data to create pay ranges and the overall salary structure.
• The same grade range is assigned to positions of comparable value.
• The pay range is the same for roles in the same grade range.
• Employees within the company are paid fairly as compared to each other.

External equity is the competitiveness of salary as compared to the market.

• External equity involves the use of market data specific to your industry and region.
• The data is used to create appropriate salary ranges for each role.

Strategies to Implement Internal and External Equity in Compensation

The approaches your organization uses to ensure pay equity should depend on your business goals.

• Use market data to create externally competitive pay ranges.
• Implement analytics to ensure internal pay equity.
• Create a culture of pay transparency to develop a positive view of your company’s compensation decisions.

Use of Analytics for Internal Equity in Compensation

Using survey data and internal analytics ensures your company’s pay is equitable.

• You may implement a formal compensation analysis process to ensure internal equity in compensation.
• HR professionals regularly should self-audit and review these compensation decisions to stay current with the changing market and conditions within the company.
• External data and internal equity should be reviewed at least annually.
• Consider implementing a system to review pay decisions and approvals to maintain equity.

Use of Market Data for External Equity in Compensation

Using market data reported by HR professionals ensures your company stays current with the rapidly changing job market.

• Your organization can maintain fair pay for all positions.
• The market data can be used to create pay ranges for all roles within your salary structure.

Monitor Employee Perception of Internal and External Equity in Compensation

Communicate to your workforce your use of market data and an internally equitable salary structure to support fair pay.

• Share your salary structure in your job descriptions and how salaries are calculated.
• Communicate the strategy and value of other benefits – for example health benefits, paid time off, professional development and dues.
• Provide managers with internal pay ranges, market data, and job descriptions for their supervisory positions.
• Train managers to be transparent and properly explain how their employees’ pay is fair.
• Effective communication increases employee engagement, productivity, and retention.

Maintain Internal and External Equity in Compensation

Fair pay needs to be an ongoing priority for your organization.

• Your employees deserve to be paid competitively and equitably.
• Fair pay increases employee attraction and retention.

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