Equity refers to fairness or using the same yardstick to ensure that two or more individuals are treated in the same manner. Equity is a fundamental theme in as far as compensation theory and practice are concerned. In compensation, equity involves ensuring that the worker’s remunerations are fair, according to the prevailing market scenario.
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Equity may arise under various contexts including the economic and legal issues of equal pay for the same kind of work, variations in pay as a result of market pressures or external competition, the need to ensure fairness in the individual wage rates for persons who have accomplished similar jobs, and the view of an individual employee regarding their value compared to the amount of pay that they get for a job done (Romanoff Boehm and Benson 18).
Equity is normally a very vital consideration in compensation because if employees within an organization feel that they are over or under-compensation, they are likely to experience guilt or anger, and this could impact on their performance. As a result, employees could try to regain the lost equity by changing outputs or inputs by using psychological justifications, or through the application of a different comparison.
The organization usually takes equity considerations very seriously because the associated behavioral consequences affect performance. Since employees are capable of altering inputs, inequity may result in changes in effort and consequently, performance. Research findings from the numerous studies on how inequity affects compensation show that individual, external, and internal underpayment is negatively associated with the change in an organization’s performance.
Although overpayment can result in positive changes in performance, nonetheless, once an organization has examined the benefit and cost, it could end up settling on equity-based compensation as a way of motivating, attracting, and rewarding its employees (Romanoff Boehm and Benson 19). If at all an organization can provide its employees with additional incentives, they are more likely to perform better and consequently, promote organization development, financial success, and growth. This leads to the accrual of employees’ and employers benefits.
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