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Internal equity is a term related to various considerations about a worker’s view of the wages he or she receives in relation to ideas or observation of what wages he or she should. In other words, workers access their current work situation by evaluating how much they are paid by for their services relative to the effort and skill required to perform those duties. It is also the analysis of the value of an employee to the organization as well as the analysis by the employee of the difference between the pay structure between organizations.
An example of the application of internal equity can be seen where a worker checks the total wages for performing a duty in a particular organization in comparison to what another worker in another organization gets for performing essentially the same duties. For example, a teller in a bank might compare the wages and benefits from that bank to the wages and benefits paid to other tellers in a different bank. The result of this study will show the bank teller if there is a judicious application of pay equity in the organization for which he or she works.
In some countries, internal equity parameters are derived from the law that relates to such matters as equitable workers’ compensation. For example, in the United States the law that deals with issues regarding internal equity is the Federal Equal Pay Act at the federal level, in addition to other state laws enacted to ensure that there is an equal and equitable pay structure in place regarding the compensation of employees across the board. Internal equity is also related to benefits and other forms of compensation that employees might reasonably expect based on their responsibilities and the type of structure in other organizations.
The reason why the application of internal equity is so important to organizations is because it is the law in most cases, and where this is not the case, it helps prevent a possible degradation of industrial relations between an organization and employees or organized labor. Apart from any mandatory laws and rules, it is also part of good human resource practice for concerned organizations to apply the principles of internal equity in their pay structure. This is a necessary process that helps to appease, encourage and facilitate greater productivity among employees due to their satisfaction with the pay they receive.