What is the ultimate goal of establishing external equity?

The ultimate goal of establishing external equity is to ensure pay is competitive with the entire market. This principle is essential because it focuses on aligning an organization's pay structure with what other employers in the industry or geographic area are offering for similar roles. By doing so, companies can attract and retain top talent, which is crucial for maintaining a competitive advantage in the marketplace.

Establishing external equity allows organizations to benchmark their compensation against their competitors, ensuring that they are not overpaying or underpaying employees in comparison to the market rates. This approach to compensation is vital for employee satisfaction and engagement, as well as for reducing turnover and ensuring that the organization is viewed as an attractive place to work.

In comparison, while equating salaries across all departments, compressing wage rates for consistency, or rewarding employee performance equally may have their own merits, these do not specifically address the need to align compensation with external market conditions, which is the core objective of achieving external equity.