External Pay Equity: Retain Your Top Talents with Competitive Benefits

External pay equity matters because it ensures fair pay practices. Giving employees an up-to-date, competitive salary makes your company attractive and able to retain top talent.

Despite the ‘job hugging’ trend that gained more interest recently, low salary is still the top reason why employees leave their jobs. With how constly turnover can be for companies, retaining talented employees by giving them fair pay can keep them from leaving.

However, practicing internal pay equity is not enough. Some employees won’t hesitate to switch to a workplace that can give them a higher salary and benefits with the same role. This is why organizations also need to improve their external pay equity practices.

Read more: Internal Pay Equity: The Key to Satisfied Modern Employees 

What is External Pay Equity

If internal pay equity is ensuring that each employee with the same roles and responsibilities is paid equally, external pay equity is ensuring that your organization offers a competitive salary for the same role in the same industry or area. One’s salary is equitable when it is more or less the same as those with other similar roles in the job market.

Doing a salary benchmark regularly provides your organization with up-to-date pay trends in the industry. To do this, the HR team needs to do a salary survey and market data, and compare them with the compensation given by your organization. The analysis will then be used as a guide to adjust salary range and compensation packages.

Why External Pay Equity Matters

For starters, a competitive salary is crucial for talent attraction and retention. When the gap is too wide, there is a high chance that your employee will look for other companies that offer higher benefits for the same role. By providing a competitive salary and compensation package, your company will remain attractive in the job market. Following this line of thought, practicing good external equity will boost your employer branding.

Furthermore, both external and internal pay equity are important aspects that can affect employees’ morale, productivity, and loyalty. Fair compensation will make your employees feel valued and motivate them to perform better. In a way, this encourages a positive workplace environment.

Balancing External and Internal Pay Equity

In its application, it’s important to ensure a balanced practice of external and internal pay equity. The bad outcome that might happen is pay compression, where the pay difference between employees doesn’t match their skills, experiences, or seniority levels. According to Forbes, there are several things that cause pay compression, including too high starting salaries, rising market rates, and poorly structured internal pay raises.

Forbes mentioned in the same article that being proactive is a critical mindset in tackling pay compression. For starters, the HR team needs to do an extensive assessment of your internal payment structure. Rearrange the budgeting and decide whether you can give a proper raise across the board or other kinds of competitive compensation.

Final Thoughts

There is no doubt that ensuring that employees who perform the same tasks are paid fairly is essential for any organization. However, it’s also crucial for HR managers to keep up with the job market and constantly check the salary benchmark. External pay equity helps organizations retain top talent, increase employee satisfaction, and eventually improve profitability.

Next read: The Impact of Payroll Management on Employee Morale and Productivity