Internal equitability means that pay is fair in light of issues such as education, experience, responsibility, effort, contribution, and results. It does not mean you need an elaborate scoring system for the relevant issues. At first a point system might seem fairer, and some companies use such a system. However, the more complex you make any system, the more difficult it is to administer. Complexity doesn't necessarily add fairness and can increase the opportunity for inequity, perceived or otherwise, and more opportunity for "gaming" the system.

Suppose pay isn't perceived as internally equitable; what's likely to happen? Inequity reduces morale in any organization, but particularly when pay is the measure of equity. All organizations have people who complain routinely about their pay (among many things), making them, and those listening to them, less productive. Of course, fairness, like beauty, is in the eye of the beholder, and what seems fair to one may seem quite unfair to another. Totally eliminating that sense of inequity is highly unlikely, but having a clear policy that minimizes it can be accomplished with an open, transparent, well-communicated manner, one that we should constantly strive to achieve. With that background, let's turn our attention to CEO compensation with particular consideration being given to the principle of internal equitability. Being externally competitive will be considered later.