White Paper Broadbanding By WorldatWork Staff May 2000 Broadbanding has been a part of the HR field since the late 80s and early 90s and was developed to compress many salary grades into fewer, wide pay "bands." Those organizations that implemented such a system were driven by the need to adapt salary-administration systems and procedures to meet a new business climate and create a flatter organization. WorldatWork s glossary definition of broadbanding is as follows: "A pay structure that consolidates a large number of pay grades and salary ranges into much fewer broad bands with relatively wide salary ranges, typically with 100 percent differences between minimum and maximum or more." Simply stated, broadbanding refers to the collapsing of job clusters or tiers of positions into a few wide bands to manage career growth and deliver pay. When broadbanding was created and massaged to its present defined form, several objectives were found: Development of broader work force skills Career development among employees Reduction of administration with job evaluation, salary structure and merit pay. Broadbanding usually appeals to fast-moving organizations that are undergoing persistent change. Such organizations that want to be quicker and more flexible in the marketplace have implemented broadbanding. They have found that broadbands complement processes designed to increase company speed, flexibility and risk taking. The concept seems to fit as a solution for employer and employee. Some or most of the career ladder rungs were removed and employees were encouraged to earn more by adding value to the company. This could be accomplished by developing new skills or competencies and/or participating in a variable pay system with a line of sight to the company s performance. Broadbands support this evolving organizational dynamic by providing less formal structure. The traditional compensation approach emphasized internal equity and focused the employee s attention on the world inside the firm. Broadbanding helps employees see a new world inside the firm and helps them
experience an internal culture that more closely reflects the external, competitive marketplace. It helps make it easier for them to reorient themselves to the marketplace. In broadbanding, there is no automatic progression to the midpoint because there is no midpoint. The marketplace for talent no longer is represented by a highly defined salary structure, but rather mirrored by loosely defined, ambiguous broadbands that don t apply directly to a person s position. Initially, many people may be uncomfortable with broadbanding, but it makes them freer and more in control of their own economic security. From an organizational standpoint, many believe that less organizational structure is a key to winning in the global marketplace. Not for Everybody This is not to say that broadbanding is a panacea for all organizations. One potential disadvantage is that broadbanding s delayered approach to salary administration may not fit the culture of heavily level-oriented companies. The need to manage salaries also does not go away. Market pricing becomes even more important because it is used extensively to identify salary targets. When broadbanding is implemented, an organization also may have to reexamine such things as management incentives, perquisites and other items tied to the conventional salary grade. Line managers also may need to be retrained to make compensation decisions while being persuaded to accept new or greater responsibility for employee career development. As some companies have found, pay systems are most effective when they support organizational change, not when they lead change. Some theorize that if an organization is not ready for broadbanding, it will likely fail. Other potential pitfalls exist. It could be possible to flatten the pay structure to the extent that supervisors and their subordinates are in the same band. The question of inflation arises, both of pay and of expectations, when employees are put in bands with potentially higher maximums than their previous grade maximums. It becomes more difficult to compare jobs to the marketplace and maintain external equity.
Just a Tool It is important to remember that broadbanding is just one of several compensation tools. There are other alternatives to support movement toward a flatter organizational structure. It also is possible to implement broadbanding for certain employee groups to correct problems in the existing pay structure. Organizations constantly face the challenge to improve the way they operate to become more competitive in the global economy. Pay systems can be effective tools to support organization change. Research has found that broadbanding has become an effective tool for administering pay strategies and managing growth. Going Global Business leaders around the world are turning to broadbanding to internally support the structural business changes to stay competitive. Companies worldwide are picking up on broadbanding ideas and concepts because other parts of the world are facing some of the same business pressures the United States experienced, such as reengineering, downsizing and the push to improve performance. These pressures create conditions where the attributes of broadbanding can be appropriately applied. Driving the global broadbanding growth is business need. Research has found that the overall set of objectives that lead companies outside the United States to pursue broadbanding are essentially the same as those expressed by U.S. corporations. Where the complexity arises for global organizations considering broadbands is the diverse socio-economic, cultural and legislative conditions among business locations. Because these conditions vary from region to region and locality to locality, the first consideration in adapting broadbanding is understanding that the "one-size-fits-all" approach will be problematic. The way a broadbanding plan is administered in the United States may fail in Germany. What works in the United Kingdom may not succeed in Asia. Consequently, the best approach is to think globally, but act locally. All global implementation plans should have set, well-defined parameters based on overall corporate values. Flexibility needs to be allowed in some areas so worldwide business units can apply different broadbanding options to support their individual business plans, as well as respond to the socio-economic, cultural or legislative issues that affect global workplaces differently.
Organizations also should be aware of country-specific work rules, union issues and legislation can play a significant role in how viable broadbanding really is. As companies around the world face increased business pressures, many are taking more of an integrated HR approach to their operations. Many times, a global broadbanding pay system is part of their strategy because it promotes high levels of employee output and competitively rewards employees. The real advantage of global broadbanding is its design flexibility, which is critical for long-term success. Taking into account the individual needs and specific challenges faced within each country, such a system can be implemented globally. Summary Broadbanding, in itself, does not answer the question of how people will develop new skills, plan their careers or progress in pay. It creates the conditions that make it advantageous for people to learn, and it creates room for the organization to pay for that learning if it contributes to improve performance. Organizations that implement broadbanding need to pay attention to the support mechanisms if it is to succeed. This includes careful implementation, ongoing communication, formal skill and career development programs, and objective evaluation of overall effectiveness. Note: WorldatWork provides no guarantee that this document has received legal review, or that it conforms to local, state and federal laws. Nothing herein is to be construed as legal, accounting, actuarial or other such professional advice. WorldatWork is not responsible for the availability or content of external Web sites, nor does WorldatWork endorse, warrant or guarantee the products, services or information described or offered at other Web sites. Contents WorldatWork 2004. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman at Sheridan Press, ghallman@tsp.sheridan.com or 717/632-3535, ext. 8175.