Management Essay -- Business, The equity System, Employee Evaluation

1.0 Introduction This chapter consists of the background of the study, problem statement, research objectives, includes both general and specific objectives, finally the significant of the study. 1.1 Research background According to David E. Terpstra (2003), organization policies on the compensation and practices play competitive roles in the business environment. However, organization must be able to define and design a form of equity systems which consists of distributive equity (external equity, internal equity, individual equity) and procedural equity in constructing pay system. Hence, it is important for the organization in packaging attractive pay and compensation policies as part as to be competitive with the market in the similar industry by adopting form of relevant equity systems. Milkovich & Newman (1996), define pay distribution as compensation levels paid for the individual performance, human capital and work responsibilities within a single organization. However, Gary Dessler (11th edition, 2008) viewed that, manager should categorize equity systems into four elements which are: i. External equity refers to the differences in jobs pay rate from one company to other companies. ii. Internal equity which measuring the differences in the jobs pay rate from one position to another position in the same company. iii. Individual equity refers to fairness of the pay that made by the company by looking at the individual performance at the same or very similar kind of jobs within the company. iv. Procedural equity refers to the decision made regarding the allocation of pay by looking at the fairness in the processes and procedures. Employees received rewards which satisfy their needs and expectations (individual go... ...ng the organization productivity (Lawler, 2003). The importance in conducting this study is actually to oversee whether the equity systems are considered during assessing the employee performance. If the equity systems linked with the performance, most of the organization must be used equity systems in setting their compensation rate. It is learnt that, money is one of motivator factor which may increase the employee credibility level in performing well. For example, if the individual is performing well, the organization may use individual equity in assessing the level of the performance before rewarding them. Since most of the employee believes equity rate is the most importance elements that need to be considered by the organization, it is the organization responsibilities to designing a competitive compensation package which may benefit both parties.