Compensation Trends – Broad banding

Most firms end up with pay plans that slots jobs into classes or grades, each with its own vertical pay rate range. For example, the US government’s pay plan consists of 18 main grades (GS -1 to GS – 18), each with its own pay range. For an employee whose job falls in one of these grades, the pay range for that grade dictates his or her minimum and maximum salary.

The question is, how wide should the salary grades be, in terms of the number of job evaluation points they include? For example, might the US government want to collapse its salary grades into six or seven boarder bands? There is a downside to having narrow grades. For instance, if you someone’s job is in grade 2 to fill in for a time in a job that happens to be in grade 1, it’s difficult to reassign that person without lowering his or her salary. Similarly, if you want the person to learn about a job that happens to be in grade 3, the employee might object to the reassignment without a corresponding raise to grade 3 pay. Traditional grade pay plans thus breed inflexibility.

That is why some firms are broad banding their pay plans. Broad banding means collapsing salary grades and ranges into just a few wide levels or brands, each of which contains a relatively wide range of jobs and salary levels. In this case the company’s previous six grades are consolidated into two broad bands.

A company may create broad bands for all its jobs, or for specific groups such as managers or professionals. The pay rate range of each broad band is relatively large, since it ranges from then minimum pay of the lowest grade the firm merged into the broad band up to the maximum pay of the highest merged grade. Thus, for example, instead of having 10 salary grades, each of which contains a salary range of $15,000 the firm might collapse the 10 grades into three broad bands, each with a set of jobs such that the difference between the lowest and highest paid jobs might be $40,000 or more. For the jobs that fall in this broad band, there is therefore a much wider range of pay rates. You can move employees from job to job within the broad band more easily, without worrying about the employees moving outside the relatively narrow rate associated with a traditional narrow pay grade. Broad banding therefore breeds flexibility.

Companies’ broadband for several reasons to support strategic performance improvement initiatives. Broad banding’s basic advantage is that it injects greater flexibility into employee assignments. It is especially sensible where firms flatten their hierarchies and organize into self managing teams. The new broad salary bands can include both supervisors and subordinates and also facilitate moving employees slightly up or down along the pay scale, without bumping the person into a new salary range. For example, “the employee who needs to spend time in a lower level job to develop a certain skill set can receive higher-than-usual pay for the work, a circumstance considered impossible under traditional pay systems. One expert argues that traditional quantitative evaluation plans actually reward inadaptability. He argues that jobs narrowly defined by compensable factors such as “know-how” are unlikely to encourage job incumbents to be flexible. Instead, the tendency may be for workers to take a “that’s not my job” attitude and to concentrate on their specific tasks.

However, broad banding can be unsettling particularly for new employees. For example, Home Depot has used broad banding for over 10 years, and “when employees want to learn something new, they play to the level [on that project] that they’re capable of” says the firm’s head of information systems. That is motivating once you get used to it. However, it can make a new employee feel adrift: There’s a sense of permanence in the set of job responsibilities often attached to job titles, he says. That sense of permanence isn’t nearly as clear when employees can (and are expected to) move frequently from project to project and job to job.

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