Which type of equity pertains to the fairness of pay compared to similar jobs across different firms?

The correct answer pertains to external equity, which refers to the fairness of pay when comparing similar jobs across different organizations or firms. This concept is crucial because it helps ensure that an organization’s compensation structure remains competitive in the labor market. By maintaining external equity, companies are more likely to attract and retain talented employees, as individuals often assess their salary in relation to what they could earn elsewhere.

External equity takes into consideration various factors, including industry standards, geographical location, and overall market trends. Organizations strive to align their compensation packages with those of competing firms to avoid losing potential employees to better-paying opportunities.

In contrast, internal equity relates to the fairness of pay among employees within the same organization, ensuring that individuals in similar roles are compensated similarly based on factors such as experience and performance. Employee equity is not a formal concept in compensation discussions, and market rate generally refers to the prevailing wage or salary level for a specific job, which can be informed by external equity but is not a standalone category of equity itself.