"Internal equity" refers to fairness within your company. Usually, it involves how your company values each job and how employees are compensated. Problems with internal equity can result when the value of an employee's work does not match his pay, or when the employee thinks he should be paid more than he is. To handle internal equity issues, you have to find out how workers perceive their jobs and pay, do some internal and external financial research, and possibly reorganize your pay system.

Set clearly defined standards by which you evaluate the value of each job and the performance of each employee. Examples of job evaluation standards include physical demands, education, experience, safety and managerial responsibilities. Performance evaluation standards include quality, conflict resolution, meeting quotas and solving problems.

Meet with employees individually, or survey them about how they perceive their jobs and compensation.

Gather data from the human resources or accounting departments of other companies and job postings about the salaries offered for positions similar to those in your business. Also gather records from your own HR and accounting departments to determine your current budget and compensation for each position.

Compare your meeting or survey results, external HR, accounting, and job-posting data and your company's budget and compensation information to determine whether your company's compensation is fair.

Review the company budget to see whether there are areas where you can reallocate funds toward employees. It sometimes help to get a fresh pair of eyes on the budget by hiring an outside consultant to analyze finances.

Meet with the employees to explain the results of your research, how you determine the value of each job, and what performance indicators you evaluate. Present your data to show you are being fair, or outline the financial difference you'd like to come up with to reduce the internal equity problems. Brainstorm with the employees to see how you could make up difference, or inform them of changes you've decided to make. Even if there is not a lot you can do, the employees will appreciate being involved and being shown management's methods and rationale.

Adopt a variable pay scale, in which employees who perform better are paid more. Set clear expectations and procedures for each level of the pay scale.

Things You Will Need

  • Job listings

  • Human resources and accounting data for similar positions at other companies

  • Copies of your current budget

  • Copies of your written company objectives (optional)