External equity pay comparisons focus on what:
A. other employees within the same organization in the same job are paid.
B. other employees within the same organization but in a different job are paid.
C. employees in other organizations are paid for doing the same general job.
D. employees in other organizations are paid for doing other jobs with higher responsibility.
The correct answer and explanation is :
Correct Answer:
C. Employees in other organizations are paid for doing the same general job.
Explanation:
External equity pay comparisons focus on how an organization’s compensation compares to that of similar jobs in other companies. This is crucial in maintaining competitive pay structures that attract and retain skilled employees. When employees perceive that they are paid fairly in comparison to the external job market, they are more likely to remain engaged and satisfied in their roles.
Organizations conduct external equity analyses by benchmarking salaries against industry standards. This is typically done using salary surveys, market research, and industry reports. HR professionals evaluate compensation levels for specific roles in competitor organizations or companies within the same sector. If an organization’s pay is significantly lower than market rates, it may struggle to attract top talent, while paying too much can lead to unnecessary financial strain.
External pay equity is particularly important in industries where employees have high mobility, such as technology, healthcare, and finance. Skilled workers in these fields can easily switch jobs if they find better compensation elsewhere. Therefore, companies must ensure their salaries remain competitive to reduce turnover and maintain a motivated workforce.
Additionally, companies that do not maintain external equity may face employee dissatisfaction and disengagement, leading to lower productivity. Employees may feel undervalued and start seeking opportunities elsewhere, increasing turnover rates. On the other hand, fair external pay positioning helps enhance an employer’s reputation and strengthens talent acquisition efforts.
To ensure external equity, organizations use compensation strategies such as pay grades, market-based pay structures, and periodic salary adjustments. By aligning their pay scales with industry norms, businesses can remain competitive and foster a motivated workforce.