Broad banding and New Pay

Broadbanding is a job grading structure that falls between using spot salaries vs. many job grades to determine what to pay particular positions and incumbents within those positions. While broadbanding gives the organization using it some broad job classifications, it does not have as many distinct job grades as traditional salary structures do. Thus, broadbanding reduces the emphasis on ‘status’ or hierarchy and places more of an emphasis on lateral job movement within the company. In a broadbanding structure an employee can be more easily rewarded for lateral movement or skills development, whereas in traditional multiple grade salary structures pay progression happens primarily via job promotion. In this way, broadbanding is a more flexible pay system. This flexibility, however, can lead to internal pay relativity problems as there is not as much control over salary progression as there would be within a traditional multi-level grading job (structure).

Organisations with broadband pay structures have broader salary ranges but there are fewer one of them this type of structure is found in flattened organisations where there is a reduced chance of promotion in terms of responsibility. Broadbanding allows organisations to increase pay and offer opportunities for training without promoting employees.

Broadband pay structures aren’t as sensitive to changing market conditions and also allow skills to more easily develop because there’s an increased emphasis placed on jobs without traditional areas of responsibility, such as managers.

Broadbanding is defined as a strategy for salary structures that consolidate a large number of pay grades into a few “broad bands“

In a broadband pay structure, the numbers of salary grades are consolidated into fewer, but broader, pay ranges. In broadbanding, the spread of the pay ranges is wider and there is less overlap with other pay ranges.

Broadbanding evolved because organizations want to flatten their hierarchies and move decision-making closer to the point where necessity and knowledge exist in organizations. In flattened organizations, fewer promotional opportunities exist so the broadbanding structure allows more latitude for pay increases and career growth without promotion.

Benefits of Broadbanding

Broadbanding has been successfully implemented in large, hierarchical organizations which attempted to flatten their organizations and remove levels of management. For example, organizations that had eight levels of management could eliminate four levels, widen the salary ranges of the remaining four levels, and simply slot each manager into one of those ranges.

With broadbanding, a manager can more easily encourage his/her employees to broaden their skills and abilities. This is valuable to organizations because employees with broad skills and abilities are critical for the success in a total quality/continuous improvement environment. In contrast, the jobs in traditional organizations are narrow and specialized. In order for employees to advance in pay and responsibility, they have to further develop their specialized skill. Thus, a bias exists against the broadening of skills.

New Pay

The New Pay’ is an approach to focusing investment in employee reward, which can be located in the ‘best practice’ (or ‘normative’) tradition of thinking. This can be contrasted with a ‘contingency’ approach matching decisions to the circumstances of institutions and people and attempts to adopt what has been termed a ‘configurational’ perspective. That approach emphasises ensuring that with lots of moving parts involved in the employment relationship those designing and administering reward management remain actively aware of the ‘open systems’ characterising all levels of an economy. We address this ‘systems thinking’ in the book, raising awareness of the way that, while the employment relationship is indeterminate (there is no algorithm for programming its outcomes), there is an interplay of forces and interests that seek to regulate it.

Irrespective of overall merits, New Pay thinking highlights that reward management is of strategic importance to all organisations; that it is a highly visible medium through which to communicate organisational values and priorities when seeking a return on investment in employing people. Where claims need particular testing is in relation to the proposition that ‘base’ pay (salary, wages) should focus on recognising the potential value an employee may contribute to an employer, whereas variable pay (commissions, bonuses, profit and other forms of ‘sharing’ plans) should recognise outcomes from the application of employee knowledge and effort. And that together these fixed and variable elements should act as an incentive to attract, retain and motivate high performance among the kinds of workforce members an employer requires to realise corporate strategic goals.