Broadbanding

Scope

Employees and managers should be aware of broadbanding.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Most companies use a traditional salary grading system which may have as many as 30 job grades. A broadbanding system, on the other hand, reduces that number to as few as five “bands.” It combines several salary grades with narrow pay ranges into one band with a wider spread. It encourages employee flexibility and development by way of horizontal job moves. Each position or job code must be slotted into one of the bands - usually based upon market pricing.

A company should have clear compensation goals and objectives when deciding on a grading structure. Both internal and external equity are important in managing salary structure - no matter which salary administration method is used. Maintaining internal equity in order to retain current employees is important, as is using external benchmark data from the marketplace to recruit new hires.

Pros. The main advantages in implementing a broadband system include:

• Support de-layering efforts,
• Reduce the number of levels within an organization,
• Encourage employee mobility,
• Allow managers more latitude in salary and promotion decisions, and
• Focus on the person rather than the job.

It may be the answer for an organization that wants to promote career development and learning among its employees, as well as allowing for internal transfers and pay increases without requiring a promotion or move to the next salary grade.

Cons. There are, however, disadvantages to this method of pay administration which include:

• Potential for costs to get out of control,
• More difficult to maintain pay equity,
• Reduces the opportunity for promotion to a higher salary range, and
• Requires managers to be familiar with interpreting market pay data.

Broadbanding lacks the internal salary control feature of a traditional salary range system where salaries are capped at the maximum of a range. It will also be necessary to train managers more thoroughly on the use of this method since the reliance on market data increases as does their accountability. Employees will also need to be made aware of the change and may find difficulty in understanding it.

Traditional salary ranges have a “Minimum/Midpoint/Maximum” for each grade level. Broadband ranges may have these also, although some omit the midpoint altogether. Some structures are further divided into “Zones” (i.e., Zone A, B, C, in each band). However, this seems to negate the main purpose of reducing the number of pay levels.