External equity is best defined as:

External equity is best defined as:

• A. Employee salary adjustments based on performance
• B. Pay levels compared to competitors' rates
• C. Salary structures determined internally
• D. Benefits comparison between organizations

Answer: (B)

External equity refers specifically to the alignment of an organization’s pay levels with those of competitors in the labor market. This concept ensures that an organization’s salaries are competitive, thereby attracting and retaining talented employees. When an organization achieves external equity, it means that their compensation practices are fair relative to similar roles in other organizations within the same industry or geographical area. The focus is on how the organization’s pay stacks up against the broader market, emphasizing the necessity of benchmarking salaries and total compensation packages against competitors to maintain competitive advantage. This is crucial for organizations that want to position themselves favorably to current and prospective employees, as disparities can lead to talent shortages or excessive turnover. The other choices do not address the market comparison that defines external equity. Adjusting salaries based on employee performance focuses on individual merit rather than market positioning. Internal salary structures pertain to how an organization values different roles internally rather than compared to the external market. Finally, benefits comparisons might be important but they fall short of the broader definition of external equity, which primarily revolves around salary levels in relation to competitors.

External equity refers specifically to the alignment of an organization’s pay levels with those of competitors in the labor market. This concept ensures that an organization’s salaries are competitive, thereby attracting and retaining talented employees. When an organization achieves external equity, it means that their compensation practices are fair relative to similar roles in other organizations within the same industry or geographical area.

The focus is on how the organization’s pay stacks up against the broader market, emphasizing the necessity of benchmarking salaries and total compensation packages against competitors to maintain competitive advantage. This is crucial for organizations that want to position themselves favorably to current and prospective employees, as disparities can lead to talent shortages or excessive turnover.

The other choices do not address the market comparison that defines external equity. Adjusting salaries based on employee performance focuses on individual merit rather than market positioning. Internal salary structures pertain to how an organization values different roles internally rather than compared to the external market. Finally, benefits comparisons might be important but they fall short of the broader definition of external equity, which primarily revolves around salary levels in relation to competitors.