Internal alignment
What is internal alignment?
Internal alignment often called internal
equity refers to the pay relationships among
different jobs/skills/competencies within a single
organization.
These relationship leads to the formation of a
pay structure.
Objectives of internal alignment
• Supports organizations strategy
• Supports workflow
• Motivates behavior
• Fair to employees
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Compensation Strategy:
Internal Alignment
Support organization
strategy
Support work flow
Compensation
strategy
should . . .
Support fairness
Motivate behavior
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What is a pay structure?
Pay structure refers to the array of pay rates
for different work or skills within a single
organization.
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Internal pay structure
A internal pay structure is defined by
Number of levels of work
Pay differentials between levels
Criteria used to determine levels and differentials
Content - Work performed in a job and how it gets done
Value - Worth of the work: its relative contribution to
objectives
Job- and person-based structures
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CEO
GM
SM 1 SM 2 SM 3 SM 4 SM 5
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Strategic Choices in Designing
Internal Structures
Tailored versus Loosely Coupled
Egalitarian versus Hierarchical
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3-9
Tailored versus Loosely Coupled
o Closely tailored structures are appropriate for well-defined jobs with detailed tasks or steps to
follow and relatively small differences in pay.
o Loosely coupled structures are appropriate for differentiation business strategy that emphasizes
constant product innovation and short product-design.
McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
3-10
Egalitarian versus Hierarchical
Egalitarian structures operate on the belief that all employees should be treated equally
in their pay
• Fewer levels and smaller differentials between adjacent levels and between highest-
and lowest-paid workers
• ‘Averagism’ brings to light that equal treatment can mean more knowledgeable
employees feel underpaid
Hierarchical pay structures
It values differences in work content, individual skills, and contributions to the
organization
Multiple levels include detailed descriptions of work done at each level
McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.