The concept of pay equity or fairness has been around for as long as people have worked for wages. The Bible tells employers that “the laborer is worthy of his reward” (1 Timothy 5:8). In its simplest form, pay equity is equal pay for equal work. It means that workers doing the same job are paid the same, regardless of their gender, age, race, national origin or disability status. Although pay equity is mandated by laws, such as the Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964 and the Lilly Ledbetter Fair Pay Act of 2009, fair pay remains a concern for many workers.
Employees believe that those who work hard, produce more and have seniority should be paid accordingly and that the relative value of the job should determine the rate of pay. They see pay in the context of the education, experience and skills they need to do the job. Workers also believe that their wages should cover basic living expenses, keep up with inflation, leave some money for saving, education and recreation, and should increase over time.
Internal equity is the relative value of an employee’s job compared to others in the organization. Internal equity is based on a number of factors, including required education and experience, physical demands of the work, responsibility for materials, equipment or the safety of others, supervisory or management responsibilities, customer contact and working conditions. Work analysis and job design are used to determine the internal equity of jobs. Employees tend to compare their pay with that of their coworkers. According to compensation consultants Romanoff, Boehm and Benson, employees perceive a lack of fairness when others in their organization are paid more for doing the same or similar work.
Individual equity is more commonly known as pay for performance or incentive pay. Workers in similar jobs sometimes are paid differently based on their level of performance. In this pay-equity model, high performers receive higher pay, often in the form of bonuses or commissions. Although some compensation specialists question the value of individual equity as a performance motivator, a study conducted by the Bureau of National Affairs found that the average U.S. worker wants pay for performance, with high-performing employees, those with advanced academic degrees and men placing greater value on it than other workers.
Employees also value personal equity. This is not a wage comparison with other workers or organizations. It is the workers’ perception of their worth to the employer based on their experience and knowledge of the market value (external equity) of their job.
When employees perceive that pay inequities exist, they will take action to correct the situation. This can include slowing down their work, doing less or trying to obtain a raise. Some workers encourage or pressure their coworkers to slow down and not work so hard. They also adjust their definition of what is fair by focusing on other benefits of the job, such as interesting work, the opportunity for promotion or having a strong bond with coworkers. They can change their basis of comparison by examining jobs in other departments rather than those in their own department or team, or they can withdraw through increased absences, tardiness or quitting their jobs.