Compensation: The Three Forms of Equity

Equity pertains to the comparison between an individual effort and outcome with others either within or outside the organization. There are three forms of equity in the reward system. They include internal, external, and individual equity (Mello, 2015). Internal equity is essentially a comparison of individual efforts and results with that of a coworker within the organization not necessarily with similar job responsibilities (Mello, 2015). Additionally, it entails the perceived remuneration fairness among holders of various job entities within an organization. As a way of motivating the employees to enhance their productivity, organizations should strive to ensure that all the employees within the organization are compensated fairly while taking into account the differences in job requirements. 

Conversely, external equity entails the comparison of individual efforts and outcome with that of the employees performing similar jobs in other organizations. Usually, employees would be demoralized if they find out that employees in other organizations performing similar tasks have better compensation. As such, external equity greatly affects the motivation of the employees (Mello, 2015).  Finally, individual equity entails the comparison of the employees’ remuneration with similar job responsibilities within the same company. Establishing the salary level of employees with an identical job in the same organization is often based on their experience or essentially the length of time they have served in the position. 

All the three types of equity are interrelated in that they are all components of the employees’ perception of fairness. As established by Mello (2015), the employees’ perception of fairness directly influences their performance, commitment, and motivation. As such, this implies that if the employees perceive their compensation to be unfair in comparison with their coworkers with similar job responsibilities or employees in other organization or coworkers with different job titles, they are more likely to be demoralized. As such, all the three forms of equity are essential, and none is important than the other.