An organization implements a flat compensation policy where all software engineers receive identical base pay, regardless of differences in their tenure, past experience, or performance levels. Within total rewards administration, this practice primarily introduces a risk of:

In total rewards and compensation design, internal equity refers to the perceived fairness of pay differentials among employees within the same organization based on job complexity, seniority, skills, and performance outputs. Paying experienced senior engineers identical salaries to entry-level engineers disregards variations in performance, tenure, and responsibility. According to J. Stacy Adams' Equity Theory, when senior employees perceive an imbalance in their outcome-to-input ratio compared to their peers, it creates severe internal inequity, leading to reduced motivation, dissatisfaction, and turnover.