Is Broadbanding a Part of Your Compensation Strategy?
By: Melonie Boone, MBA, MJ, PHR, Founder, Boone Management Group, Inc.
Todayâ€™s organizations face the threat of external uncertainty on a daily basis. In the current turbulent business environment, an organizational strategy that can flexibly adapt to external threats is a key to success.
Given the unpredictable nature of external factors, how can an organization create a future-oriented, strategic compensation plan in order to attract and retain its talent?
The answer can be found in a compensation strategy called â€œBroadbanding.â€
Many of the more â€œtraditionalâ€ compensation strategies determine base pay (hourly, salary, etc.) for employees based on what other organizations in their industry are paying (a technique called market comparison). The market comparison technique may not be the best option for companies that are in industries that are constantly changing, and broadbanding may be a good alternative.
Itâ€™s not about competition: Broadbanding does not use market comparison, and instead groups multiple job functions and positions into a few wide â€œbands,â€ each representing a range of employee salaries. Rather than each department or individual making a different amount of money based on their rank in the company, broadbanding considers employee Knowledge, Skills and Abilities (KSAs) when placing them into a pay band.
Itâ€™s about improvement and development: Research has found that placing employees into pay bands encourages the development of new skills and abilities. Broadbanding uses KSAs for promotion and movement within pay bands, which may inspire employees to develop their skills and professional knowledge, which may benefit the organization as a whole by increasing the quality of its human capital.
Positive attitudes towards salary structure: Many organizations that use traditional compensation strategies create a culture where employees are concerned with their rank in the company, and how to move up the company ladder. Broadbanding takes this focus, and moves it to a more individual level that focuses on personal development. Broadbanding may place employees and their superiors in the same band, which may improve employee performance and attitudes about salary structure.
Although there are many benefits to implementing this approach in an organization, the compensation strategy does have a few challenges and pitfalls.
Lack of a reality check: Adopting a broadbanding approach eliminates market comparison and reflection, which can be a useful tool that many professionals use to determine where their organization stands in comparison to its competitors. This may lead to a decreased awareness of external market conditions, and requires that managers and HR professionals understand, remain current, and are able to interpret key market pay data.
A fear of increased costs: Broadbanding does not have an established set of rules or restrictions that prevent employees from reaching the top of their pay range. This lack of restriction causes many professionals to worry about an increase in costs associated with salary and compensation.
Reduced opportunities for promotions: Decreasing the number of salary bands may lead to fewer opportunities for employees to advance to the next pay range, and this lack of upward mobility may be discouraging to some employees.
Over the past decade, executive and legislative branch members have posed concerns about adopting a broadbanding approach within the federal government and related agencies. Their concerns and reluctance are fueled by a fear of increased costs, and a lack of trust from labor organizations that oppose giving managers complete control over pay decisions and administration.
Although there are a number of advantages to implementing a broadband system, the disadvantages should be weighed before choosing whether a broadbanding approach is right for your organization. The biggest concern related to broadbanding is the lack of market comparison. Without pay range midpoints, it may be difficult for organizations to accurately compare their salary margins to their competitors in the market.
Implementing a broadbanding compensation strategy is a large-scale project for any organization and the process duration is not specific to this compensation strategy alone. Another example of a beneficial compensation strategy we have talked about in our blog is Total Rewards, which shares similar concepts with the Broadbanding approach. The pros and cons of implementing any kind of compensation strategy should be carefully evaluated before deciding which one is right for your organization.
Melonie Boone, MBA, MJ, PHR, Founder of Boone Management Group Inc., is a business strategist and executive leader with comprehensive experience in business optimization and human resources strategy. She works as a member of senior management to optimize strategic planning in support of organizational growth, bringing proven results in business strategy advising and directing human resources operations in diverse organizations across multiple states. Contact Melonie directly: email@example.com.