What is external equity in reference to pay?

In pay, external equity refers to the relative amount an employer pays workers compared to what competitors pay workers in similar jobs, according to Boundless. A primary purpose of ensuring external pay equity is to attract and retain talented workers across all positions, according to USLegal.

The basis of external equity is how much an employee believes his transferable and technical skills are worth at another company. One way companies track their external equity is through exit interviews, reports USLegal. If a high portion of workers leave an organization based on better-paying jobs elsewhere, the company may need to review its pay relative to the industry.