Inequity in any category can result in severe morale problems. If employees feel they are being compensated unfairly, they may restrict their efforts or leave the company, leading to poor overall performance for the organization. If two accountants in the same firm are performing similar jobs and one is acknowledged to be superior to the other, while both receive equal pay increases, employee equity is denied and the more productive employee is likely to be unhappy.

Most workers are concerned with pay equity, both internal and external. Employees are likely to have access to information about pay issues within their own organization, and use available data to form their perceptions of equity. To maintain viability, the organization has to be competitive within the labor market, and so external equity must always be a prominent consideration. The difficulty in maintaining equity on all fronts has long been an organizational challenge.

Compensation theory has never been able to provide a completely satisfactory answer to the question of how to determine what an individual is worth on the job market. Since this is a human business, no scientific approach is available but a number of relevant factors are typically used to determine salary including the strategic direction of the organization, the labor market, the jobs within the organization, and the employees.