A challenge in the implementation of any compensation program is maintaining internal equity. What does that mean? When considering adding a new staff member, the rate of compensation offered must be consistent with other staff already in place in similar positions.
This can be difficult, especially when an outside person is being considered who, in their current position, is already making significantly more than staff already in place. This can happen because staff already in place might have been hired from within and have been in place for a very long time. While they have received pay increases yearly, their salaries haven’t kept up with staff in similar positions in other organizations.
So what do you do? The bottom line is comparing the outside person and the inside person(s) in terms of years and type of experience, and formal background. If the prospective staff member will require more compensation due to their current salary, but their formal background and/or experience don’t justify it, you’ve got to keep looking.
One of the most widely used methods for helping to maintain internal equity is the establishment of “pay grades” and “salary ranges.” Based on the job description, staff in similar positions in terms of duties and responsibilities are placed in similar pay grades. Their compensation rate within a grade must fit into the pay range of that grade. Make sense?
Within the same pay grade, a staff member with more experience or a more applicable formal background would be higher in the range. Newer staff with less experience and a less applicable or formal background will be lower in the range.
Maintaining internal equity is probably one of the most important purposes of any good compensation program.