Reconciling internal equity with external competitiveness is a dilemma challenging many companies. Concentrating on one or the other is rarely desirable, advisable or sometimes legal. Instead, we need a way to achieve a balance between these objectives to best serve the organization. One approach suggests that a better mindset is "both internal equity and external competitiveness." Adopting this perspective recognizes an interaction between the two. Achieving one without the other is not a victory.
Recently, increasing number of organizations are emphasizing market competitiveness over internal equity - job evaluation and internal equity are passé - markets are all that matters. While competitiveness is a key consideration, exclusive concentration on market levels is unlikely to serve most organizations well.
One important issue impacting the focus on external competitiveness is how well a company can price its jobs in the market. The data available for many specialist jobs can be out of date before they are delivered. There is also the reality that no matter how much survey data is available, there is no accurate market rate that can be determined. Instead, a range of prevailing rates exists, in part because surveys are a statistical sample with limited data points and wide margins of error.
A company's cultural is also important when deciding whether to stress equity or competitiveness. Few workers will happy when they perceive inequities based on the usual measures of internal job values. Mobile people tend to worry less about their pay relative to others in the organization - people who expect or hope their career advancement to occur within the company will be more concerned about internal equity and will judge their pay progression to see if it is aligned with their career progression.
Balancing internal equity and external competitiveness is a challenge for compensation designers. Claims that job evaluation is outdated are wrong. Focusing on competitiveness alone is rarely practical or useful, but so is focusing on internal equity to the exclusion of obvious market pressures.
As in most things in life, a balance is healthy.
This article is a précis of ideas from an article in the WorldatWork Journal 3rd Quarter, "Internal Equity and External Competitiveness: Critical Components of Effective Rewards Strategies" by Robert J. Greene