Organizational position

Two important factors in the determination of pay for any given position are the position’s pay in relation to the marketplace and the position’s pay relative to others within the organization. The first factor is known as external equity and the latter as internal equity. However, in many cases, external equity is used to determine the position’s pay when there is a different result that reflected by the two methods. This leads to a perception of unfairness when viewed from the internal equity perspective. The most notable situation concerns pay for women in many job categories. This arises because many jobs that are primarily held by women pay less than jobs primarily held by men. From an internal equity perspective, the jobs may be evaluated equally by the job evaluation system, but in the marketplace, the jobs in which women predominate are paid less. Organizations then face a dilemma—should the jobs be paid at the market rate or the internal rate?

In more than 100 countries, the decision has been to base pay on the principle of internal equity and pay jobs with equal job evaluation points the same without regard to external rates. However, in the U.S. this has not been the case. For example, in Washington state the average pay for women was found to be 20% lower than men in jobs that had the same number of job evaluation points. Additionally, the Bureau of Labor Statistics reports that 80 percent of U.S. female workers are employed in occupations in which at least 70 percent of all employees are women. This leads, for example, to the situations in which the pay of school teachers is less than that of the groundskeepers.

Legislation was introduced in Congress in 2005 (the Fair Pay Act) to require internal equity for Federal workers, and similar legislation has been discussed for the private sector. To date, this legislation has received little support.

Are you in favor of fair-pay type legislation to equalize the pay between men and women? Why or why not? If you were to make a case for your position, what job evaluation principles would you apply and why? What internal and external equity principles would you use to explain your position? Justify your chosen position by analysis, reasoning, and example.


In its annual issue on executive compensation Forbes magazine in 2007, reported that “the chief executives of America’s 500 biggest companies got a collective 38% pay raise last year, to $7.5 billion.” Leading the pack was Steve Jobs of Apple, Inc. with total compensation of $646.6 million. CEO’s pay has been a hot topic for the last couple of years and looks to continue to be in the news. University presidents are now also getting in the news with many of them earning in excess of $1 million annually with expense accounts as high as $700,000.

What is your view on executive compensation? Is it too much? Is it justified? Is it the result of the CEO appointing friendly colleagues to the board who willingly support pay increases for their friends? Is it simply the free market at work?

What do others say about CEO’s pay? Cite at least one credible external reference on each side of this issue in stating and justifying your position.

Review your peers’ postings and comment on whether you agree or disagree with their positions and defend your own position.

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