Common Issues in Internal Pay Equity

Roadblocks to Internal Pay Equity: Two Key Issues

Most of you in HR have seen some common problems with internal pay equity. Perhaps the most common is pay compression, often resulting when the pay market requires you to hire someone new at a higher rate than your longtime employees in the same job are getting paid.

Much has been written about the most common issues in internal pay equity. So, in this blog post, I’m going to take on some of the most common issues I’ve dealt with that don’t receive attention. The hope is that the information will help you tackle these common issues in internal pay equity.

Internal Pay Equity Issue 1: Everyone Unconsciously Thinks They Should Be Paid at the Salary Midpoint or Above

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In every organization I’ve come across, dealing with groups of people who think they should be paid at least at the salary midpoint is the number one challenge for communicating to employees regarding where they are in the pay range.

Every single employee – and manager – with whom I’ve spoken on the subject assumes that, if the employee is doing an acceptable, decent job, they ought to be at the salary midpoint.

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Ask yourself: “Do I agree?”

The flaw in that assumption has profound implications on your compensation structure. But it takes some wading through the issues to make it clear.

Let’s go, sleuths. Let’s find that profound flaw. The following are the steps:

Question #1: What does the salary midpoint in most salary ranges represent?

Reply: In my experience, the salary midpoint is often a close approximation of the median market pay rate for that job.

Question #2: What, then, does “market pay median” represent?

Reply: Fifty percent of the people surveyed in the job earn more than the median, and 50 percent earn less.

Question #3: If 50 percent earn less than the median, they must be poor performers, no?

Reply: This is the key, profound, statistical point. The 50 percent of those surveyed who earn less than the median had to be competent enough to do their jobs that they still had their job at the time of the survey.

Conclusion: As many competent people in the market earn less than the median as earn more than the median.

Resulting Flawed Assumption: If everyone who was competent is to be paid at least at the salary range midpoint (roughly at the market median), the market median would be way higher than it is.

Implication for Your Pay Program: If you have employees within the normal range of competency that you’d find elsewhere in the market, you would expect to pay as many people less than midpoint as are paid more than the salary midpoint. And you’d see that as a healthy result.

Key Question: Do you, dear reader, actually feel that to be a healthy result, in your gut? Is half of your competent workforce being paid less than the midpoint, while the other half is paid more than the midpoint?

In the analysis above, many extenuating circumstances can apply. The “theory” of half below-half above doesn’t apply where you have a very small department or where you have an atypically junior or seasoned group, etc.

The point here is that we need to be able to wrap our arms unabashedly around what the salary midpoint (roughly market median) most often means. Statistically, you’d expect as many people to be paid under midpoint in your company, as over midpoint.

And that would be a healthy result. That would be a result you could take public to an employee group, and defend as an ethical outcome.

If that idea takes your breath away (sheer terror?) it is only corroboration that most employees don’t get what “market median” really means in terms of their salary expectations.

Internal Pay Equity Issue 2: The One Manager in Every Organization Who Drives Hard to Get Large Pay Raises for Everyone Who Reports to Them … for a Different Reason

I’ve never seen this issue addressed in print but, again, I’ve run into it in nearly every organization in which I’ve worked. So, I thought it would be timely to address here.

Maybe you’ve felt pressure from this manager through statements like the following:

1. “Your market compensation data is inaccurate. I know what you have to pay in this market and its way more than your market data says.”
2. “My people have been way underpaid for years, and now that I’m here, I’m going to correct that so they don’t walk, and because they deserve it.”
3. “This particular job has a micro-pay-market all its own that isn’t captured in the more broadly assessed job titles that are surveyed in market data surveys.”

These can all be entirely legitimate issues. But when they’re coming from the one manager in every organization to which I’m referring, there’s a certain red-herring aroma that accompanies their drive for pay increases.

That’s what I’m calling out here. The rare (thankfully) manager who is pushing for their people to get raises, as a way to compress pay underneath them, to justify their own future large pay push. This rare bird isn’t fighting for their employees. They’re fighting for their own pay, and using their employees’ pay as a negotiating tool.

They are trying to create internal “inequity” that supports their own eventual pay raise.

Again, this person is fortunately rare, but every organization seems to have at least one manager who applies this pressure.

I’m calling it out here to help you see it, so you can decide consciously whether a manager’s pressure is valid, or just a bargaining chip in ultimately raising their own pay.


Stuart Jennings

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1 Comment on "Common Issues in Internal Pay Equity"

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I real like the way you have put the analysis and the responses to the questions that majority of HRs may have asked themselves. So how can you then justify pay difference, what is necessary to keep in order to stand as evidence for pay differences.
What extra can be done to ensure staff understand to minimize staff relations issues?
Thank you so much