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Is Broadbanding Here to Stay

September 2, 1999
Related Topics: Compensation Design and Communication, Featured Article
Editor's Note: On a whim, Workforce Department Editor Scott Hays signed up for a class titled "Human Resources Management," as part of the HR/Management Certificate Program at the University of California, Irvine. Each week, he'll visit one nugget of knowledge from the course, helping you move slowly in the direction of becoming a more strategic partner.

The trend to consolidate salary grades and ranges, otherwise known as broadbanding, may inject greater flexibility into your company’s compensation program, and facilitate skills growth and career development in your employees.

Broadbanding occurs when an employer reduces its salary grades and ranges from 25 or more down to only a few. For example, instead of having 25 salary grades each of which contain a 50-percent spread from low end to top end, your company might consolidate its salary grades into only a few "broad bands" with spread of, say, 150 to 300 percent.

In his book, "Human Resource Management" (Prentice-Hall, Inc., 1997), Gary Dessler says there are several advantages to broadbanding: It injects greater flexibility into employees compensation, and it’s "especially sensible when a firm flattens its hierarchy and organizes around self-managing teams." Broadbanding also works in an environment where employees need "less specialization and more participation" in cross-departmental activity.

"The argument here is that being slotted into a job that is highly routine as defined by a compensable factor such as ‘know-how’ is unlikely to encourage job incumbents to think independently or be flexible," writes Dessler. "Instead, the tendency may be for workers to concentrate on the specific, routine jobs to which they are assigned and for which they are rewarded."

Ken Abosch is business leader in compensation practices for Lincolnshire, Illinois-based consulting firm Hewitt Associates. He says broadbanding also helps facilitate skills growth and career development in employees. "Especially in today’s labor market, it’s becoming increasingly difficult to hire people with the necessary skills, so companies are starting to realize it may be more efficient and more cost effective to try to grow those skills in-house."

For example, typically when you approach employees about a new assignment, they’re only interested if it results in a higher salary grade, explains Abosch. By collapsing salary ranges and grades, it’s possible for people to move in unconventional ways (sideways or down sometimes), and it opens up opportunities for people to find growth and stimulation.

According to new research by Hewitt Associates, almost half of all U.S. corporations either have in place or are considering broadbanding. If you’re considering it, consider these steps suggested by Abosch:

  1. Get educated as to how broadbanding really works so you understand the pros and cons. It’s something that’s not always right for every company.

  2. Conduct a readiness assessment. Look inside your organization and ask the tough questions: Is the timing right? Are you ready to ask managers to have significant accountability to make pay decisions? Do you really need to put emphasis on career growth and cross-lateral movement within the company?
  3. Formulate a cross-functional design team who will decide upon and assign the number of salary ranges and subdivide the bands into either specific jobs or skill levels.
  4. Plan the implementation process. Too many companies make the mistake of focusing on design and not enough on implementation, says Abosch. And don’t forget to train managers and communicate openly with employees.

SOURCE: Human Resource Management (Prentice-Hall, Inc., 1997) by Gary Dessler.

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