KevinBishop-InternalExternalComp

Romanoff et al 2012 after determining compensable

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and evaluate the compensable factors that will go into setting an individual employee’s pay. (Romanoff, et. al 2012). After determining compensable factors, such as skills required, educational requirements, etc., companies should look at the external job market to look at how the company’s compensation package relates to similar organizations in the market. (Frye, 2004). Intel and Dupont are two companies that utilize internal equity. At Intel, compensation for the CEO is determined by comparing the top five executive’s cash compensation relative to the 100 highest paid employees at the company, checking for internal consistency. (Vivient, 2005). This lines up well with Intel’s objective of adjusting the relationship between the pay of executive officers and the CEO’s pay. The advantages of internal equity can be seen in Intel. When employees are aware of what their fellow employees are paid at their particular “level”
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Internal and External Equity Compensation Plan 3 within the company, a check and balance system based on internal equity can help to keep internal dissatisfaction in check, especially between high ranking executives. However, this does have some disadvantages, as it can risk losing employees to competition, and may thus be harmful in the future. (Armstrong, 2007). Another disadvantage is that it may discourage employee motivation, who knows that they will be paid according to the internal equity policy, rather than merit or individual performance (Mathis & Jackson, 2008). While there are potential
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