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Internal fairness in an organization's pay structure promotes equity among employees, which can enhance morale, reduce turnover, and foster a collaborative work environment. However, it may also lead to rigidity, where performance and merit are overlooked in favor of maintaining pay equity. This can result in dissatisfaction among high performers who feel undercompensated and might stifle innovation if employees are not incentivized to exceed expectations. Balancing internal fairness with external competitiveness and individual performance is crucial for an effective pay structure.

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