External equity the situation that exists when an organization's pay rates are at least equal to market rates. It is also known as matching strategy. An employer's goal should be to pay what is necessary to attract, retain and motivate a sufficient number of qualified employees. This requires a base pay program that pays competitively. Among others, internal data such as turnover rates and exit interviews can be helpful in determining the competitiveness of pay rates.
Employees also compare their jobs and pay to the jobs and pay in other organizations. Generally, employees consider much more than base pay in determining external equity. Depending on the employee, more weight may be given to employee benefits, job security, physical work environment, commuting distance, opportunity for advancement and the employee relations practices of the employer in determining external equity issues.
An important issue to employees in determining external equity is the transferability of their skills. If an employee's skills are valued more highly in a different type of job or industry in the area, the employee may believe that s/he is being treated inequitably.
