Internal equity and job evaluation are closely related concepts within a company. Internal equity is a general level of fairness in the alignment of the work employees perform in their positions and the rewards they receive for it. Job evaluations are tactics used by an employer to assess the value of a given position to the company and the associated pay for that position.
Internal equity actually has two basic considerations -- employee value and fairness. Companies look at internal equity as a comparison between how much they invest in each employee and what they get back in production and performance. Employees are concerned with the aspect of internal equity relating to a system of fair pay, benefits and rewards for the work they do. Well-established internal equity programs are motivating to employees, good from a human resources standpoint, and typically make for a better investment for the company.
Another way to better understand internal equity is to compare it with external equity. Internal equity considers the relative fairness of compensation for work among positions within the organization. External equity compares your organization's pay for certain positions to pay given to employees in competing companies for the same positions. Internal equity helps keep a sense of fairness among co-workers. External equity helps protect your company against losses of your top talent to competitors that compensate better.
From the employer's perspective, job evaluations are an important human resources tool used to assess the relationship between each position and its compensation. By evaluating each job, HR can possibly eliminate positions of redundancy and develop pay scales that more accurately relate to the performance expectations. They can also promote or give pay increases to employees whose performance exceeds the standard set for their current positions.
HR professionals typically engage in job evaluations to develop or update a pay scale so that each position is appropriately slotted on the pay scale based on its job description and importance. Periodic reviews of jobs are important to adjust when new duties or expectations have been added. Managers in certain areas often request job re-evaluations when they feel employees are not paid according to their work. Employees may often seek a review of their placement if they feel their job demands more than it did when the pay scale placement was set.