What is broadbanding?

Broadbanding is a fresh approach to employee pay that breaks away from traditional, rigid structures. Instead of having numerous, narrow pay grades, it consolidates similar job categories into wider "pay bands." This allows for a much broader spectrum of compensation levels within each band.

A typical wage band might have a 25-60% range for comparison. Broadbanding offers significantly more flexibility, with ranges often spanning from 80% to even 300% between the lowest and highest-paid positions within a band. This flexibility empowers managers to tailor compensation to individual skills and experience within the band.

In essence, broadband gives managers more freedom and options when determining employee pay.

What are the objectives of broadbanding?

The HR and pay and benefits teams adopt broadbanding with the following objectives in mind:

• Offering flexibility in employee remuneration.
• Encourage employees to gain new abilities to move up within the salary range.
• Reduced the necessity for pay band reclassification.

Who Benefits from Broadbanding?

Broadbanding isn't a one-size-fits-all solution. It tends to be most effective in industries where employees develop their skills and climb the ladder within the same company. This is because broadbanding rewards "horizontal career growth" – excelling in your current role and gaining new skills within a broader pay band.

Here are some examples of organizations that can thrive with a broadbanding system:

• Healthcare and hospitals
• Startups
• IT

However, it's not a one-size-fits-all solution. Broadbanding downplays hierarchy, so it wouldn't work well in highly structured organizations. Additionally, companies with rapid growth across locations might find it challenging to implement this structure consistently.

Broadbanding in Action: A Finance Department Example

Imagine a finance department using broadbanding. They would group all their finance jobs, from entry-level to highly skilled positions, into one broad "finance" pay band. This single band would encompass a wide salary range, accounting for both the most junior and most senior finance professionals.

For example, let's say the average salary in the finance department is $60,000. With broadbanding, this pay band could have a flexibility range of 80% to 180% of the median salary. This translates to a salary minimum of $48,000 and a maximum of $108,000 within the same "finance" band.

Benefits of Broadbanding

• Boosts internal movement and skill development. Broadbanding encourages employees to stay within the company and grow their skill sets. They can take on new projects and challenges within the same pay band, leading to promotions without necessarily needing a management position. This focus on skills, not just titles, fosters a culture of continuous learning.
• Flattens the hierarchy. By reducing the number of pay grades, broadbanding streamlines the organizational structure. This opens doors for lateral moves (switching roles within the same level) and career advancement without promotions.
• Improves employee satisfaction. Broadbanding caters to employees who prefer deep specialization. They can achieve higher salaries within their field of expertise without needing to become managers, which might not appeal to everyone.
• Simplifies administration. Broadbanding's flexibility reduces administrative burdens for HR by minimizing the need for frequent pay band adjustments. Managers also gain more control over employee compensation within the band.

Drawbacks of Broadbanding

• Broadbanding might not always consider external salary trends or market adjustments. This could lead to employees being underpaid compared to similar roles elsewhere.
• In cultures where frequent promotions are the norm, broadbanding might dampen employee motivation. With fewer promotion levels, some employees might feel their career progression is limited.
• If clear guidelines for pay increases within a band aren't established, broadbanding could lead to unequal pay for similar work. This can create frustration and a sense of unfairness among employees.

Making the Switch: From Traditional Pay to Broadbanding

Thinking about switching to a broadbanding pay structure? Here's a roadmap to a smooth transition:

Take stock of your current system: Analyze your existing compensation policies and strategies. This will help you identify the best approach to transition smoothly to a broadbanding system.

Solidify your job evaluation process: Before implementing broadbanding, ensure your job evaluation system is reliable. This guarantees fair and accurate classification of jobs into the new pay bands.

Group jobs of similar value: Combine positions with comparable responsibilities and skill requirements into a single band. This promotes consistency and a sense of fairness within the organization. Clear documentation of these bands is crucial for external audits.

Embrace collaboration: Involve HR, management, and even employees during the development of pay bands. Open communication is essential, and employee participation can simplify explaining the new structure.

Establish clear band policies: Develop a comprehensive policy outlining how employees can earn raises within their pay band, how transitions between bands work, and any other relevant details. This transparency helps manage expectations and fosters trust.

Broadbanding in HR: Setting Clear Expectations

Transparency is key! During the selection and interview process, take the time to explain the broadbanding pay structure. This upfront communication helps manage employee expectations about salary increases and career advancement opportunities within your organization right from the start of their journey (employee life cycle).