Understanding broadbanding. Recently with the talks of recession in the air, companies are cutting back annual merit-based raises. They're introducing or extending all kinds of variable-pay schemes--not just group incentives but team-based pay, stock option and stock ownership arrangements, and profit-sharing plans. Where base pay is concerned, they're replacing traditional lockstep systems-replete with dozens of different grades and compensation levels--with something called broadbanding.
Figure 1-Broadbanding[1]
Definition: Broadbanding or just banding as it is also called is the compression of the hierarchy of pay grades or salary ranges into a small number (typically four or five) of wide bands. Each of the bands therefore spans the pay opportunities previously covered by several separate pay ranges, as illustrated in Figure-1.1
Broadbanding is the grouping of jobs of significant differences or worth or value within one band. This pay grouping or expanded pay grade might have a range varying from 50 percent to more than 100 percent and include jobs that have responsibilities and duties that vary in complexity and difficulty and require significantly different kinds and levels of knowledge and skills.
Why: Broadbanding can be useful in designing a pay plan for the companies that make extensive use of team as it deemphasizes titles, grades, and job descriptions. It emphasizes the advancement of group values and team performance along with that of individual. As their duties and role change, employees can easily shift around within a band, without all the baggage that went with the traditional pay-grade program[1]
New team members with minimum levels of required knowledge and skills could be paid at the lower end of the band and as they acquire more knowledge and skills and perform more and different jobs or assignments, or work at different workstations, their pay could be increased upward through the band.
There are total 12 steps for designing, developing and installing a broadbanded pay structure for the team members of an organization. Those 12 Steps are as under[2]:
How: Step 1: Arrive at a mutual agreement on the most suitable pay structure for progression.
Step 2: Temporarily estimate the number of bands that will be required by analyzing the organization’s structure and the various roles carried out at each level.
Step 3: Decide on the width of bands, the degree of overlap, the anchor points and pay zones
Step 4: Carry out a job evaluation exercise to define band boundaries and revise the band structure as appropriate
Step 5: Conduct a pay survey to establish market rates
Step 6: Position roles in bands on the basis of relative size as established by job evaluation results and market rates. This will be based on judgment to establish the weight to be given to internal and external relativities. A decision will also need to be made on the extent to which it is policy to provide for market relativities to drive pay decisions
Step 7: Decide on the basis for progressing pay within zones and for adjusting pay levels following a change in role
Step 8: Decide on the role of job evaluation in defining band boundaries, guiding band positioning decisions and dealing with new roles or equal value queries
Step 9: Examine existing rates of pay for employees, identify any increases and establish any cases where pay protection may be necessary
Step 10: Draw up procedures for managing the structure including the allocation of roles to bands, the use of job evaluation, the conduct of pay reviews, fixing salaries for recruitment purposes or following a change in role, maintaining data on market rates and the use of performance management processes to assist in making pay review decisions
Step 11: Brief and train managers on the new structure and their roles in managing pay
Step 12: Communicate the details of the new structure and how it affects them to staff
Advantages:
- It provides greater flexibility for organizations to make and administer pay decisions.
- There is more scope for lateral career development because broad bands create a flatter organizational structure.
- It can be used as a mechanism for facilitating an organization to change from a traditional hierarchical approach to one that is flatter, multi skilled and more flexible. This is achieved by replacing a traditional structure comprised of many vertically integrated narrow bands with a much smaller number of wider bands that allow for greater individual progression.
- An organization operating with a small number of bands is able to address communication issues more effectively because it grades far more employees within the same pay category
- If it is linked to a performance related, team or contribution method of pay reward system it can closely align pay progression to the corporate goals of the organization
- As more employees will be classified in the same band it can be used to reduce the status consciousness that is often found in a narrow banded pay structure. This in turn might help to focus employee attention to the external environment rather than internal equity
- When aligned to a competence based method of reward it can encourage employee development and therefore, multi-skilling
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Disadvantages:
- The elimination of a narrow banded grading structure and the status conferred on employees as they progress up the hierarchy might instill resentment in highly status conscious-employees
- There is a danger of band drift because the amount of spinal column points between the lowest and the highest points of a broad band are considerably greater than in a narrow banded pay structure. This means that extra resources are needed to carefully control and monitor the structure
- It can increase the likelihood for an authority to be involved in a discrimination case under equal value legislation. To avoid this, equality-proofed broad banding arrangements must be established
- Market rates of pay will have to be continuously monitored if broad banding is used to address recruitment problems that have arisen due to external competition. This can be a very costly and time-consuming process and can place extra pressures on HR and pay specialists within the authority
- There is no evidence to suggest that a broad banded pay structure will suit the culture or every organization. If it is imposed without the commitment of the majority of the workforce there is a danger of breaking the psychological contract between the employer and the employees. This in turn can cause significant motivation problems
- If employees believe that the decision of their line manager on their pay progression has been subjective and has ignored set criteria for assessment such as the effect of market rates or individual / team contribution the whole process can be undermined
- If broad banding is not introduced with a full and clear explanation of how it will effect individual employees it will be rejected as a concept that is too difficult to understand
- The time and resources needed to train line managers to make pay decisions at appraisal is considerable, but unavoidable if possible discrimination cases under equal value legislation are to be avoided
- If a broad banded structure is linked to a competency based reward system the scope for employees to acquire new skills will need to be tightly controlled to avoid costs increasing too rapidly.
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