Compensation and Internal & External Equity

Compensation

may be in the form of financial returns, tangible services, and benefits received by employees as part of their employment. It does not include other forms of rewards such as recognition and interpersonal relationships etc.

Compensation Strategy

is the organization’s plan for how compensation decisions on the types and amount of pay are made, based on the interests of the employees and keeping with the organization’s mission and competitive position in the market. 

External Competitiveness

is the comparing of compensation rates of one organization to those of its competitors.

Extrinsic Rewards

are rewards that an employee receives because of the job itself, including cash compensation, benefits, promotions and job security.

Internal Equity

is the fairness in the employment contract or compensation programs when compared with other employees within the organization.

Intrinsic Rewards

come from the work environment and are valued internally by the employee.  Job satisfaction, self-esteem, achievement, growth, and professional and personal development are some examples of intrinsic rewards.

Labour Market

is the geographical area from which an organization recruits employees and where individuals seek employment.

Market Rate

is the rate of pay established for a “benchmark job” outside of the organization.  It is determined though the collection of pay data gleaned from surveys of many organizations.