Broadbanding: Advantages and Disadvantages in Compensation

Introduction to Broadbanding

In a 1997 survey reported by the American Federation of State, County and Municipal Employees, more than two-thirds of state government personnel managers indicated they "would like to change their state's salary and classification systems." They believed that their governments had far too many job titles, far too few people filling each title, and outmoded salary systems — some over two decades old. But what kind of solution would help organizations win that "numbers game"?

Enter broadbanding, the practice of structuring job classifications to have fewer "layers" than a traditional compensation system. For example, a company that starts out with eight layers compresses those layers into four broader ones, creating a new set of job classifications that group similar skill sets and personnel together. Overnight — or so it can seem — a company's entire compensation picture shifts, its grades change, and the "lay of the land" becomes a whole new territory. This new territory is both an individual challenge and a corporate one. Although the effect of a broadband can be, and sometimes is, a change in the salary range of a particular job, its practical ramifications in reality extend beyond individual job descriptions into a much wider picture. Examining that "bigger picture" in detail reveals that broadbanding is a phenomenon with its own distinct set of advantages and disadvantages.

Employer Benefits of Broadbanding

From the employer's point of view, broadbanding has many clear positive effects. Since employees' "bands" are wider — with a larger range from minimum to maximum pay rates — individual jobs become multidimensional and even multifunctional. Employers enjoy greater flexibility in assigning work and getting it done, which enables a company making the transition from traditional hierarchies to a more flattened organizational structure to have its compensation levels correspond to the new simplified corporate map. It simplifies the deployment of personnel without concern about "grade" issues, and it can even be one element in creating a work atmosphere in which employees have a more pivotal role in decision-making concerning their own career development — thereby empowering a labor force that may have felt it had little control over its own destiny, and improving labor-management relations in the process.

Even multiple layers of middle management, when broadbanded into fewer layers, can enjoy a "halo" effect from this simplification. Reducing the number of layers within an organization, ideally, will streamline its operations, make communications easier, and — just as it does with the occupational labor force — give even low- to mid-level managers an increased sense of autonomy and control. Fewer layers mean less detail, less paperwork, and fewer premature or unnecessary requests for raises and promotions (Jackson and Mathis 423–4), thus accomplishing the goals of keeping the organization at a good competitive "fighting weight" in the marketplace, with less waste, duplication, and red tape standing between the company and its goals.

Challenges of Pay Equity and Career Mobility

In actual practice, however, some of this "compression" is trickier to execute well. Certainly, removing a slavish reliance on HR to set pay scales and policies can work to "free up" change in an organization. On the other hand, loosening those ties to firm central control — whether by HR or another centralized source — can blur both job description and compensation lines to the point where clear demarcations and standards become impossible to set. The issue of pay equity comes to mind immediately. If two employees who share the same job title are suddenly within the same "band," and one is paid near the bottom of the range while the other is at the top, how does a manager justify either salary? Does the bottom of the range automatically move up by a given percentage? If not, does a broadened band mean a flattened ceiling for the best achievers? That is hardly a way to find and keep good people.

A similar dilemma exists when broadbanding brings employees with diverse skill levels together, effectively positioning them against each other. For example, if a file clerk is broadbanded into a level that includes not only clerks but extends up to executive secretaries, how long does the file clerk remain a file clerk before considering upgrading their skill set — thereby posing a real competitive threat to the layers above? Conversely, what happens to the executive secretary who realizes they are only two "layers" from the ceiling of their band, but whose skills do not translate easily into another broad band within the company?

In the old system, with an ally or mentor in the company, that executive secretary might have been able to transition into, say, an entry-level comptroller's assistant position, with the idea of eventually working toward a more responsible role in finance. In the new broadened compensation plan, however, the Finance band may be such a distinct entity from the Administrative band — with such a difference in minimum to maximum grades — that an entry-level executive secretary may have to accept a substantial pay cut in order to advance. That is not exactly an effective way to raise employee morale.

Of course, even in the old hierarchical system, many upwardly mobile employees were willing to accept a temporary setback in pay in order to learn a new job; this, in itself, is not an ailment that broadbanding would uniquely exacerbate. However, if that executive secretary pushes the envelope, they could make a compelling case for starting at a considerably higher "beginner" rate in the Finance band than legitimate Finance beginners are paid. This again raises issues of pay equity, the possibility of discrimination lawsuits, and could present more potential headaches than traditional "promotion from within" ever caused. That anticipation of trouble could, in turn, lead companies to actively discourage employees from exploring different jobs within the organization or to refuse cross-band promotion requests and training beyond certain pay grade levels. In the long run, such a policy ends up sending some of the best and brightest out the door — once again, not the result broadbanding is intended to achieve.

Conclusion

Broadbanding is not perfect, nor is it right for every organization — at least not yet. But it deserves careful consideration and, when used intelligently, is rapidly becoming an effective tool to help companies compete strategically in the twenty-first century and beyond.

Broadbanding. American Federation of State, County and Municipal Employees, AFL-CIO, 2002.

Auxillium West — The HR Manager — Broadbanding. Auxillium West, 2001.

Jackson, John H., and Robert L. Mathis. Human Resource Management. 9th ed. South-Western Thomson Learning, 2000, pp. 422–424.