Fair and Equitable Compensation

¶ … Equitable Compensation The objective of this study is to examine fair and equitable compensation and to utilize critical thinking in discussing issues from two perspectives and those being the perspectives of both employee and employer. The writer's own concepts will be critically examined concerning compensation and benefits issues. Defining Fair and Equitable In order to examine the issue of fair and equitable compensation it is necessary that the words 'fair' and 'equitable' be defined.

The word 'fair' is defined by the Merriam-Webster Dictionary as "agreeing with what is thought to be right or acceptable" and "pleasing to the eye or mind especially because of fresh, charming, or flawless quality." (2013, p.1) The word 'equitable' is defined by the Merriam-Webster Dictionary as "dealing fairly and equally with all concerned." (2013, p.1) Therefore, fair and equitable compensation means that the compensation offered by the employer to the employee is fair and equal to the work being performed by the employee for the employer in comparison to work performed by other employees for the employer.

II. Understanding Fair and Equitable Compensation Calculation The work of Romanoff, Boehm, and Benson (nd) report that a central theme in compensation theory and practice is that of equity and it is important that equity is applicable in various contexts including; (1) legal and economic issues of equal pay for similar work; (2) differences in pay due to external competition or market pressures; (3) individual wage fairness for the same job being performed by more than one individual; (4) the view of the individual employee as to their value when compared to their pay.

(p.1) It is reported that the approach that the company uses to equity "is as important as the actual pay programs it implements." (Romanoff, Boehm, and Benson, nd, p. 1) Romanoff, Boehm, and Benson report that the company's focus on equity external to the company is the general method of designing compensation structures and programs geared toward competitiveness with the labor markets and is such that enables the company to remain competitive with other companies.

The perceptions of employees of company equity in compensation are important in the company's ability to "attract, retain and motivate its employees." (Romanoff, Boehm, and Benson, nd, p.1) Employees however, perceive equity in various ways therefore equitable compensation is such that "poses a conceptual and practical challenge" or the dilemma of how the ability of the company to pay and willingness and need to pay can be reconciled with the perception of equity held by employees.

Equity is relevant in cases where employees "perform similar jobs" and when they perform dissimilar jobs and work within the same department or in different departments." (Romanoff, Boehm, and Benson, nd, p. 2-3) Equity is reported to be expressed externally when employees work in the same or different industries, in the same union or profession and in the same or different geographic locations and finally when employees work in organizations of similar size.

(Romanoff, Boehm, and Benson, nd, paraphrased) External equity exists when an employer "pays a wage rate commensurate with the wages prevailing in external labor markets." (Romanoff, Boehm, and Benson, nd, p.3) Factors contributing to these wage differences among markets including such as geographic location, industry sector, union status, size of organization, competition among products, prestige of company, available workforce education and experience and job required licensing or certification. The labor market for specific jobs are determined by some or a combination of these particular factors.

If the market is defined too narrowly then wages higher than necessary may be paid however, should the market be defined too broadly the organization may set wages so low that they are unable to attract and retain the best employees. III. Compensation Defined Compensation is defined variously and may include such as "total reward systems" and those that include monetary and non-monetary as well as indirect compensation awards.

Non-monetary compensation is a benefit that is received by the employee from a job that does not hold an immediate and tangible value while direct compensation is the base wage of the employee in the form of an annual salary or an hourly wage. Indirect compensation is quite varied and may be inclusive of health insurance, retirement, paid leave, child care or other such benefits. Direct compensation alternatives are also inclusive of such as base and incentive pay, stock options, and bonuses. (Curriculum Guide, 2009, p. 2) IV.

Employee Expectations The expectation of employees include that their wages will "cover basic living expenses, keep up with inflation, provide some funds for savings or recreation and increase over time." (Curriculum Guide, 2009, p. 4) Fairness is reported as a critical element in developing the compensation package of employees. V. Discussion Fair and equitable compensation in the view of this writer is compensation that enables the employee to pay for the necessities of life and that holds a future promise.